Tesco 2011 Annual Report Download - page 119

Download and view the complete annual report

Please find page 119 of the 2011 Tesco annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 162

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162

NOTE 10 GOODWILL AND OTHER INTANGIBLE ASSETS CONTINUED
Impairment of goodwill
Goodwill arising on business combinations is not amortised but is reviewed for impairment on an annual basis, or more frequently if there are
indications that goodwill may be impaired. Goodwill acquired in a business combination is allocated to groups of cash-generating units according
to the level at which management monitor that goodwill.
Recoverable amounts for cash-generating units are based on the higher of value in use and fair value less costs to sell. Value in use is calculated
from cash flow projections for generally five years using data from the Group’s latest internal forecasts, the results of which are reviewed by the Board.
The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes in margins. Management
estimate discount rates using pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the
cash-generating units. Changes in selling prices and direct costs are based on past experience and expectations of future changes in the market.
Given the current economic climate, a sensitivity analysis has been performed in assessing the recoverable amounts of goodwill.
During the financial year, the remaining carrying amount of goodwill for Japan was reduced to nil through the recognition of an impairment loss
of £55m (2010 – £131m). This has been included in cost of sales in the Group Income Statement.
The pre-tax discount rates used to calculate value in use range from 8% to 14% (2010 – 6% to 14%). On a post-tax basis, the discount rates ranged
from 6% to 12% (2010 – 4% to 13%). These discount rates are derived from the Group’s post-tax weighted average cost of capital, as adjusted for
the specific risks relating to each geographical region.
The forecasts are extrapolated beyond five years based on estimated long-term average growth rates of 2% to 5% (2010 – 1% to 4%).
In February 2011 and 2010 impairment reviews were performed by comparing the carrying value of goodwill with the recoverable amount of the
cash-generating units to which goodwill has been allocated.
The components of goodwill are as follows:
2011
£m
2010
£m
UK 645 645
Tesco Bank 802 802
Thailand 161 157
South Korea 468 489
Japan –55
China 582 594
Malaysia 83 77
Poland 401 424
Czech Republic 34 35
Turkey 50 54
US 78 –
Other 12 5
3,316 3,337
Overview Business review Governance Financial statements
TESCO PLC Annual Report and Financial Statements 2011
—
115