Tesco 2010 Annual Report Download - page 77

Financial statements
Notes to the Group financial statements
General information
Tesco PLC is a public limited company incorporated and domiciled in the
United Kingdom under the Companies Act 2006 (Registration number
445790). The address of the registered office is Tesco House, Delamare
Road, Cheshunt, Hertfordshire, EN8 9SL, UK.
The financial year represents the 52 weeks ended 27 February 2010 (prior
financial year 53 weeks ended 28 February 2009 and includes 53 weeks of
trading for the UK, Republic of Ireland (ROI) and United States of America
(US) businesses).
As described in the Report of the Directors, the main activity of the Group
is that of retailing, retailing services and financial services.
Statement of compliance
The consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS) and International
Financial Reporting Interpretation Committee (IFRIC) interpretations as
endorsed by the European Union, and those parts of the Companies Act
applicable to companies reporting under IFRS.
Basis of preparation
The financial statements are presented in Pounds Sterling, generally
rounded to the nearest million. They are prepared on the historical cost
basis, except for certain financial instruments, share-based payments,
customer loyalty programmes and pensions that have been measured
at fair value.
The accounting policies set out below have been applied consistently
to all periods presented in these consolidated financial statements.
Basis of consolidation
The Group financial statements consist of the financial statements of
the ultimate Parent Company (Tesco PLC), all entities controlled by the
Company (its subsidiaries) and the Group’s share of its interests in joint
ventures and associates.
Where necessary, adjustments are made to the financial statements of
subsidiaries, joint ventures and associates to bring the accounting policies
used into line with those of the Group.
Subsidiaries
A subsidiary is an entity whose operating and financing policies are
controlled, directly or indirectly, by Tesco PLC.
The accounts of the Parent Company’s subsidiary undertakings are
prepared to dates around the Group year end.
The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date
that control ceases.
Intragroup balances and any unrealised gains and losses or income and
expenses arising from intragroup transactions, are eliminated in preparing
the consolidated financial statements.
Joint ventures and associates
A joint venture is an entity in which the Group holds an interest on a long-
term basis and which is jointly controlled by the Group and one or more
other venturers under a contractual agreement.
An associate is an undertaking, not being a subsidiary or joint venture,
over which the Group has significant influence and can participate in the
financial and operating policy decisions of the entity.
The Group’s share of the results of joint ventures and associates is included
in the Group Income Statement using the equity method of accounting.
Investments in joint ventures and associates are carried in the Group Balance
Sheet at cost plus post-acquisition changes in the Group’s share of the net
assets of the entity, less any impairment in value. The carrying values of
investments in joint ventures and associates include acquired goodwill.
If the Group’s share of losses in a joint venture or associate equals or
exceeds its investment in the joint venture or associate, the Group does
not recognise further losses, unless it has incurred obligations to do so or
made payments on behalf of the joint venture or associate.
Unrealised gains arising from transactions with joint ventures and
associates are eliminated to the extent of the Group’s interest in the entity.
Use of assumptions and estimates
The preparation of the consolidated financial statements requires
management to make judgements, estimates and assumptions that affect
the application of policies and reported amounts of assets and liabilities,
income and expenses. The estimates and associated assumptions are
based on historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form the
basis of making judgements about carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that period, or in
the period of the revision and future periods if the revision affects both
current and future periods.
Critical estimates and assumptions are made in particular with regard to
establishing uniform depreciation and amortisation periods for the Group,
impairment testing (including loans), provisions for onerous leases and other
provisions, assumptions for measuring pension provisions and fair value of
share-based payments, determination of the fair value of obligations to
purchase minority interests and fair value of derivative financial instruments,
classification of leases as operating leases versus finance leases (including on
sale and leasebacks), the likelihood that tax assets can be realised and the
classification of certain operations as held for sale.
Changes in accounting policy and disclosure
The Group has adopted the following new and amended standards and
interpretations as of 1 March 2009:
• IFRIC 13 ‘Customer Loyalty Programmes’, effective for annual periods
beginning on or after 1 July 2008, requires customer loyalty awards to
be accounted for as a separate component of the sales transaction in
which they are granted. Part of the fair value of the consideration
received relating to the customer loyalty awards is deferred and
subsequently recognised over the period in which the awards are
redeemed. The results for the 53 weeks ended 28 February 2009 have
been restated accordingly. The impact on the Group Income Statement
for the year ended 28 February 2009, is a £429m reduction in total
revenue, £396m reduction in cost of sales and a £9m decrease to the
taxation charge for the year. The net impact is a decrease of £33m to
profit before tax and £24m to profit after tax. The net impact to the
Group Balance Sheet as at 28 February 2009 is a £53m reduction in
shareholders’ equity, £73m increase in trade and other payables and
a £20m reduction in the provision for deferred tax. The net impact to
the Group Balance Sheet as at 24 February 2008 is a £29m reduction in
shareholders’ equity, £40m increase in trade and other payables and
an £11m reduction in the provision for deferred tax. The prior year effect
of the restatement on basic and diluted earnings per share is a reduction
of 0.36p per share, and 0.35p per share, respectively.
• Amendment to IFRS 2 ‘Share-Based Payment’ – Vesting Conditions
and Cancellations, effective for annual periods beginning on or after
1January 2009 clarifies that only service and performance conditions
are vesting conditions. Any other conditions are non-vesting conditions
which have to be taken into account to determine the fair value of the
equity instruments granted. The award must be treated as a cancellation
where the award does not vest as a result of a failure to meet a non-
vesting condition that is within the control of either the Group or the
counterparty. Cancellations are treated as accelerated vestings and all
remaining future charges are immediately recognised in the Group
Income Statement with the credit recognised directly in equity. The
results for the year ended 28 February 2009 have been restated
accordingly. The impact on the Group Income Statement, Group
Balance Sheet, basic and diluted earnings per share for the prior year
was not material.
Note 1 Accounting policies
Tesco PLC Annual Report and Financial Statements 2010 75