Tesco 2013 Annual Report Download - page 83

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Tesco PLC Annual Report and Financial Statements 2013
OVERVIEW BUSINESS REVIEW PERFORMANCE REVIEW GOVERNANCE FINANCIAL STATEMENTS
Business combinations and goodwill
The Group accounts for all business combinations by applying the
purchase method. All acquisition-related costs are expensed.
On acquisition, the assets (including intangible assets), liabilities and
contingent liabilities of an acquired entity are measured at their fair
value. Non-controlling interest is stated at the non-controlling interest’s
proportion of the fair values of the assets and liabilities recognised.
Goodwill arising on consolidation represents the excess of the
consideration transferred over the net fair value of the Group’s share
of the net assets, liabilities and contingent liabilities of the acquired
subsidiary, joint venture or associate and the fair value of the non-
controlling interest in the acquiree. If the consideration is less than
the fair value of the Group’s share of the net assets, liabilities and
contingent liabilities of the acquired entity (i.e. a discount on acquisition),
the difference is credited to the Group Income Statement in the period
of acquisition.
At the acquisition date of a subsidiary, goodwill acquired is recognised
as an asset and is allocated to each of the cash-generating units
expected to benefit from the business combination’s synergies and to
the lowest level at which management monitors the goodwill. Goodwill
arising on the acquisition of joint ventures and associates is included
within the carrying value of the investment.
On disposal of a subsidiary, joint venture or associate, the attributable
amount of goodwill is included in the determination of the profit or loss
ondisposal.
Intangible assets
Acquired intangible assets
Separately acquired intangible assets, such as software, pharmacy
licences, customer relationships, contracts and brands are measured
initially at cost. Intangible assets acquired in a business combination are
recognised at fair value at the acquisition date. Intangible assets with
finite useful lives are carried at cost and are amortised on a straight-line
basis over their estimated useful lives, at 2%–100% of cost per annum.
Internally-generated intangible assets – Research and development
expenditure
Research costs are expensed as incurred. Development expenditure
incurred on an individual project is capitalised only if specific criteria
are met including that the asset created will probably generate future
economic benefits.
Following the initial recognition of development expenditure, the cost
isamortised over the asset’s estimated useful life at 10%–25% of cost
perannum.
Property, plant and equipment
Property, plant and equipment is carried at cost less accumulated
depreciation and any recognised impairment in value.
Property, plant and equipment is depreciated on a straight-line basis to
its residual value over its anticipated useful economic life. The following
depreciation rates are applied for the Group:
• freehold and leasehold buildings with greater than 40 years unexpired
– at 2.5% of cost;
• leasehold properties with less than 40 years unexpired are depreciated
by equal annual instalments over the unexpired period of the lease;
and
• plant, equipment, fixtures and fittings and motor vehicles – at rates
varying from 9% to 50%.
Assets held under finance leases are depreciated over their expected
useful lives on the same basis as owned assets or, when shorter, over
the term of the relevant lease.
Impairment of non-financial assets
Goodwill is reviewed for impairment at least annually by assessing the
recoverable amount of each cash-generating unit to which the goodwill
relates. The recoverable amount is the higher of fair value less costs
to sell, and value in use. When the recoverable amount of the cash-
generating unit is less than the carrying amount, an impairment loss
is recognised. Any impairment is recognised immediately in the Group
Income Statement and is not subsequently reversed.
For all other non-financial assets (including intangible assets and
property, plant and equipment) the Group performs impairment testing
where there are indicators of impairment. If such an indicator exists,
the recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). Where the asset does not
generate cash flows that are independent from other assets, the Group
estimates the recoverable amount of the cash-generating unit to which
the asset belongs.
The recoverable amount is the higher of fair value less costs to sell and
value in use. If the recoverable amount of an asset (or cash-generating
unit) is estimated to be less than its carrying amount, the carrying
amountof the asset (or cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognised immediately
in the Group Income Statement.
Where an impairment loss subsequently reverses, the carrying amount
of the asset (or cash-generating unit) is increased to the revised estimate
of the recoverable amount, but so that the increased carrying amount
does not exceed the carrying amount that would have been determined
if no impairment loss had been recognised for the asset (or cash-
generating unit) in prior years. A reversal of an impairment loss is
recognised immediately as a credit to the Group Income Statement.
Investment property
Investment property assets are carried at cost less accumulated
depreciation and any recognised impairment in value. The depreciation
policies for investment property are consistent with those described for
owner-occupied property.
Short-term and other investments
Short-term and other investments in the Group Balance Sheet comprise
receivables, loan receivables and available-for-sale financial assets.
Receivables and loan receivables are recognised at amortised cost.
Available-for-sale financial assets are recognised at fair value.
Refer to the financial instruments accounting policy for further detail.
Inventories
Inventories comprise goods and properties held for resale and properties
held for, or in the course of, development with a view to sell. Inventories
arevalued at the lower of cost and fair value less costs to sell using the
weighted average cost basis.
Cash and cash equivalents
Cash and cash equivalents in the Group Balance Sheet consist of cash
at bank, in hand, demand deposits with banks, loans and advances to
banks, certificate of deposits and other receivables together with short-
term deposits with an original maturity of three months or less.
Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale
if their carrying amount will be recovered through sale rather than
continuing use. Non-current assets (and disposal groups) classified
as held for sale are measured at the lower of carrying amount and fair
value less costs to sell.
Leasing
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
Note 1 Accounting policies continued