Tesco 2015 Annual Report Download - page 142

Note 1 Accounting policies
investing activities. The Company does not hold or issue derivative financial
instruments for trading purposes.
Derivative financial instruments are recognised and stated at fair value. Where
derivatives do not qualify for hedge accounting, any gains or losses on
remeasurement are immediately recognised in the Company Profit and Loss
Account. Where derivatives qualify for hedge accounting, recognition of any
resultant gain or loss depends on the nature of the hedge relationship and the
items being hedged.
In order to qualify for hedge accounting, the Company is required to document
from inception, the relationship between the item being hedged and the hedging
instrument. The Company is also required to document and demonstrate an
assessment of the relationship between the hedged item and the hedging
instrument, which shows that the hedge will be highly effective on an on-going
basis. This effectiveness testing is performed at each reporting date to ensure that
the hedge remains highly effective.
Derivative financial instruments with maturity dates of more than one year from
the balance sheet date are disclosed as falling due after more than one year.
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
re-measurement 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, or 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 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 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.
The Company may surrender Group relief to group companies and consequently
there may be no tax charge in the Profit and Loss Account
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-discounted
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 at the balance sheet date.
Basis of preparation
The Parent Company financial statements have been prepared on a going concern
basis using the historical cost convention modified for the revaluation of certain
financial instruments and in accordance with generally accepted accounting
principles (‘UK GAAP’) and the Companies Act 2006. The Parent Company’s
principal accounting policies have been applied consistently during the year.
The financial year represents the 53 weeks to 28 February 2015 (prior financial year
52 weeks to 22 February 2014).
A summary of the Company’s significant accounting policies is set outbelow.
Exemptions
The Directors have taken advantage of the exemption available under Section 408
of the Companies Act 2006 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 not provided derivative financial instrument disclosures
of the Company alone.
The Company is also exempt under the terms of FRS 8 ‘Related Party Disclosures’
from disclosing related party transactions with wholly owned entities within the
Tesco Group.
Short-term investments
Current asset investments relate to money market deposits which are recognised
initially at fair value, and subsequently at amortised 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
Transactions in foreign currencies are translated at the exchange rate on the date
of transaction. At the balance sheet date, monetary assets and liabilities that are
denominated in foreign currencies are retranslated at the rates prevailing on the
balance sheet date.
Share-based payments
The fair value of employee share option plans is calculated at the grant date using
the Black-Scholes model. 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 shares or 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 party to the contractual
provisions of the instrument.
Debtors
Debtors are recognised initially at fair value, and subsequently at amortised cost
using the effective interest rate method, less provision for impairment.
Financial liabilities and equity instruments
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. Equity instruments issued by the Company are recorded as the proceeds
received, net of direct issue costs.
Borrowings
Interest-bearing bank loans and overdrafts are initially recognised 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 differences between cost and redemption value being recognised
in the Company Profit and Loss Account over theperiod of the borrowings
on an effective interest basis.
Other creditors
Other creditors are recognised initially at fair value, and subsequently at amortised
cost using the effective interest rate method.
Derivative financial instruments and hedge accounting
The Company uses derivative financial instruments to hedge its exposure
to foreign exchange and interest rate risks arising from operating, financing and
140 Tesco PLC Annual Report and Financial Statements 2015
Notes to the Parent Company financial statements