Tesco 2012 Annual Report Download - page 148

Fair value hedging
Derivative financial instruments are classified as fair value hedges when
they hedge the Company’s exposure to changes in the fair value of a
recognised asset or liability. Changes in the fair value of derivatives that
are designated and qualify as fair value hedges are recorded in the
Company Profit and Loss Account, together with any changes in the
fair value of the hedged item that is attributable to the hedged risk.
Cash flow hedging
Derivative financial instruments are classified as cash flow hedges when
they hedge the Company’s exposure to variability in cash flows that are
either attributable to a particular risk associated with a recognised asset
or liability, or a highly probable forecasted transaction.
The effective element of any gain or loss from remeasuring the
derivative instrument is recognised directly in equity.
The associated cumulative gain or loss is removed from equity and
recognised in the Company Profit and Loss Account in the same
period during which the hedged transaction affects the Company
Profit and Loss Account. The classification of the effective portion
when recognised in the Company Profit and Loss Account is the same
as the classification of the hedged transaction. Any element of the
remeasurement criteria of the derivative instrument which does not
meet the criteria for an effective hedge is recognised immediately
in the Company Profit and Loss Account.
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated or exercised, no longer qualifies for
hedge accounting or is de-designated. At that point in time, any
cumulative gain or loss on the hedging instrument recognised in
equity is retained in equity until the forecasted transaction occurs
or the original hedged item affects the Parent Company Profit and
Loss Account. If a forecasted hedged transaction is no longer expected
to occur, the net cumulative gain or loss recognised in equity is
transferred to the Company Profit and Loss Account.
Pensions
The Company participates in the Tesco PLC Pension Scheme which is
a multi-employer scheme within the Tesco Group and cannot identify
its share of the underlying assets and liabilities of the scheme. Accordingly,
as permitted by FRS 17 ‘Retirement Benefits’, the Company has
accounted for the scheme as a defined contribution scheme, and the
charge for the period is based upon the cash contributions payable.
Taxation
Corporation tax payable is provided on the taxable profit for the year,
using the tax rates enacted or substantively enacted by the Balance
Sheet date.
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the Balance Sheet date and would give
rise to an obligation to pay more or less tax in the future.
Deferred tax assets are recognised to the extent that they are
recoverable. They are regarded as recoverable to the extent that on
the basis of all available evidence, it is regarded as more likely than
not that there will be suitable taxable profits from which the future
reversal of the underlying timing differences can be deducted.
Deferred tax is measured on a non-discontinued basis at the tax
rates that are expected to apply in the periods in which the timing
differences reverse, based on tax rates and laws that have been
substantively enacted by the Balance Sheet date.
Note 1 Accounting policies continued
Notes to the Parent Company financial statements
144 Tesco PLC Annual Report and Financial Statements 2012