Tesco 2008 Annual Report Download - page 101

Tesco PLC Annual Report and
Financial Statements 2008 99
Basis of preparation
These financial statements have been prepared under UK GAAP using the
historical cost convention modified for the revaluation of certain financial
instruments and in accordance with applicable accounting standards and
the Companies Acts 1985 and 2006 as applicable.
A summary of the Company’s significant accounting policies are set out below.
Exemptions
The Directors have taken advantage of the exemption available under
Section 230 of the Companies Act 1985 and not presented a Profit and
Loss Account for the Company alone.
The Company has taken advantage of the FRS 29 ‘Financial Instruments:
Disclosures’ exemption and has not provided derivative financial instrument
disclosures for the company alone.
The Company has also taken advantage of the exemption from preparing
a cash flow statement under the terms of FRS 1 ‘Cash Flow Statement’.
The cash flows of the Company are included in the Tesco PLC Group
financial statements.
The Company is also exempt under the terms of FRS 8 ‘Related Parties’
from disclosing related party transactions with entities that are part of
the Tesco PLC Group.
Recent accounting developments
UITF 44 ‘Group and treasury share transactions’ (effective for periods
beginning on or after 1 March 2007) addresses how to account for
share-based payments in individual financial statements of each entity
in Group situations.
Following the issue of this guidance we have reviewed our accounting
treatment of share-based payments in Tesco PLC and subsidiary companies.
Our new accounting treatment results in a Balance Sheet reclassification
between intercompany balances, investments and retained earnings, and
we have restated our prior year comparatives to apply this treatment as
if it had always existed. The impact of this reclassification was to reduce
amounts owed by subsidiary undertakings by £295m, decrease investments
in subsidiaries by £67m and to decrease retained earnings by £362m.
There is no impact on the Company’s Profit and Loss Account for the
current and prior years nor on the Company’s consolidated Group Income
Statement and Group Balance Sheet.
FRS 29 ‘Financial Instruments: Disclosures’ and amendments to IAS 1
‘Presentation of Financial Statements – Capital Disclosures’ were issued
in August 2005 and are effective for accounting periods beginning on or
after 1 January 2007. These amendments revise and enhance previous
disclosures required by FRS 25 ‘Financial Instruments: Disclosures’
and FRS 13 ‘Derivatives and other financial instruments: Disclosures’.
The adoption of FRS 29 will have no impact upon the results or net assets
of the Company.
Money market deposits
Money market deposits are stated at cost. All income from these investments
is included in the Profit and Loss Account as interest receivable and
similar income.
Investments in subsidiaries and joint ventures
Investments in subsidiaries and joint ventures are stated at cost less,
where appropriate, provisions for impairment.
Foreign currencies
Assets and liabilities in foreign currencies are translated into Pounds Sterling
at the financial year end exchange rates.
Share-based payments
Employees of the Company receive part of their remuneration in the form
of share-based payment transactions, whereby employees render services
in exchange for shares or rights over shares (equity-settled transactions)
or in exchange for entitlements to cash payments based on the value of
the shares (cash-settled transactions).
The fair value of employee share option plans is calculated at the grant
date using the Black-Scholes model. In accordance with FRS 20 ‘Share-based
payment’ the resulting cost is charged to the Profit and Loss Account over
the vesting period. The value of the charge is adjusted to reflect expected
and actual levels of vesting.
Where the Company awards options to employees of subsidiary entities,
this is treated as a capital contribution.
Financial instruments
Financial assets and financial liabilities are recognised on the Company’s
Balance Sheet when the Company becomes a party to the contractual
provisions of the instrument.
Debtors
Debtors are non interest-bearing and are recognised initially at fair value,
and subsequently at amortised cost using the effective interest rate
method, reduced by appropriate allowances for estimated irrecoverable
amounts.
Current asset investments
Investments are classified as either held for trading or available-for-sale,
and are measured at subsequent reporting dates at fair value. For held for
trading, gains and losses arising from changes in fair value are recognised
in the Profit and Loss Account. Gains and losses arising from changes in
fair value for available-for-sale investments are recognised directly in equity,
until the security is disposed of or is determined to be impaired, at which
time the cumulative gain or loss previously recognised in equity is included
in the net result for the period.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument
is any contract that gives a residual interest in the assets of the Company
after deducting all of its liabilities.
Interest-bearing borrowings
Interest-bearing bank loans and overdrafts are initially recorded at the value
of the amount received, net of attributable transaction costs. Subsequent
to initial recognition, interest-bearing borrowings are stated at amortised
cost with any difference between cost and redemption value being recognised
in the Profit and Loss Account over the period of the borrowings on an
effective interest basis.
Creditors
Creditors are non interest-bearing and are stated at amortised cost.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds
received, net of direct issue costs.
Notes to the Parent Company financial statements
Note 1 Accounting policies