Tesco 2006 Annual Report Download - page 99

97Tesco plc
Note 32 Explanation of transition to IFRSs continued
Following a detailed review of our property lease portfolio, a small number of ‘building’ leases have been reclassified as finance
leases and brought onto the Balance Sheet as at 29 February 2004, based on the criteria of IAS 17. This led to a relatively small
increase in Property, plant and equipment, and a similar increase in the finance lease creditor.
The following adjustments have been made at the opening Balance Sheet and as at 26 February 2005:
29 February 26 February
2004 2005
£m £m
Property, plant & equipment 29 49
Adjustment to net assets (4) (5)
The associated impact on the Income Statement of the above is that some UK GAAP operating lease expenses are replaced with
depreciation and financing charges for the building elements of the reclassified leases. Over the life of the lease, the total Income
Statement charge remains the same, but the timing of expenses will change, with more of the total expense recognised earlier
in the lease term. The net pre-tax impact on the Income Statement is immaterial for the year ended 26 February 2005.
In 2004/05 there was a one-off Income Statement adjustment of £4m, relating to the deferral of some profit from the sale and
leaseback transaction completed in April 2004, which instead will be recognised over the 25-year lease term.
Fixed rental uplifts
The Group has a number of leases that contain minimum rental uplifts at predetermined rent review dates. Some of these leases
are with external landlords and some with the Group’s property joint ventures. The International Financial Reporting Interpretations
Committee (IFRIC) has recently clarified that it is necessary to account for these increases on a straight-line basis over the life of the
lease. Previously, the Group charged such increases to the Income Statement in the year they arose.
The total amount payable over the life of the lease remains unchanged but the timing of the Income Statement charge changes.
The excess of the rent charged to the Income Statement over the cash payment in any given period will be held on the Balance
Sheet in Trade and other payables. This change in accounting treatment has the following effect on the Balance Sheets as at
29 February 2004 and 26 February 2005, and the Income Statement for 2004/05.
29 February 2004/05 26 February
2004 Income 2005
BalanceSheet Statement Balance Sheet
£m £m £m
Operating profit impact (1) (12) (13)
Joint ventures and Associates –44
Deferred tax –33
Impact on net assets/profit after tax (1) (5) (6)
Employee benefits (IAS 19)
Post-employment benefits
For UK GAAP reporting, we applied the measurement and recognition policies of SSAP 24 ‘Accounting for pension costs’ for pensions
and other post-employment benefits, whilst providing detailed disclosures for the alternative measurement principles of FRS 17
‘Retirement Benefits’.
IAS 19 takes a similar approach to accounting for defined benefit schemes as FRS 17, thus on transition, the deficit disclosed under
FRS 17 has been recognised in the Balance Sheet. At the opening Balance Sheet, this resulted in a pre-tax reduction in net assets of
£676m representing the sum of the deficit plus the reversal of a SSAP 24 debtor in the UK GAAP Balance Sheet as at 29 February
2004. An associated deferred tax asset of £199m has been recognised in respect of the pension deficit. Therefore the total
adjustment to net assets as at 29 February 2004 was £477m.