Tesco PLC Annual Report and Financial Statements 2013
77
Note 1 Accounting policies General information Tesco PLC (‘the Company’) 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 main activities of the Company and its subsidiaries (together, ‘the Group’) are those of retailing and retail banking.
Discontinued operations During the financial year, the Board approved a plan to dispose of its operations in the US which is consistent with the Group’s long-term strategic priority to drive growth and improve returns. The exit of the Japan operations successfully completed on 1 January 2013. In accordance with IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’, the net results for the year are presented within discontinued operations in the Group Income Statement (for which the comparatives have been reclassified) and the assets and liabilities of the businesses are presented separately in the Group Balance Sheet. See Note 7 for further details.
Presentation change to reserves ‘All other reserves’ in the Group Balance Sheet and Group Statement of Changes in Equity includes several items of reserves including ‘Other reserves’. In the previous year, ‘Other reserves’ was shown separately. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.
Subsidiaries 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.
Critical estimates and assumptions that are applied in the preparation of the consolidated financial statements include: Depreciation and amortisation The Group exercises judgement to determine useful lives and residual values of intangibles, property, plant and equipment and investment property. The assets are depreciated down to their residual values over their estimated useful lives. Impairment i) Impairment of goodwill The Group tests annually whether goodwill has suffered any impairment. The recoverable amount of the cash-generating units has been determined based on value in use calculations. These calculations require the use of estimates as set out in Note 10. ii) Impairment of assets The Group has determined each store as a separate cash-generating unit for impairment testing. Where there are indicators for impairment, the Group performs an impairment test. 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 five years using data from the Group’s latest internal forecasts. These calculations require the use of estimates as set out in Note 11. iii) Impairment of loans and advances to customers and banks The Group’s loan impairment provisions are established to recognise incurred impairment losses in its portfolio of loans classified as loans and receivables and carried at amortised cost. These calculations require the use of estimates as set out in the accounting policy note for Financial instruments. Provisions Provisions have been made for onerous leases, dilapidations, restructuring, pensions, customer redress and claims. These provisions are estimates and the actual costs and timing of future cash flows are dependent on future events. The difference between expectations and the actual future liability will be accounted for in the period when such determination is made. The Group has provisions for potential customer redress. In 2010/11, the Financial Conduct Authority (‘FCA’) (previously the Financial Services Authority) formally issued Policy Statement 10/12 (‘PS 10/12’), which introduced new guidance in respect of Payment Protection Insurance
FINANCIAL STATEMENTS
Basis of consolidation The consolidated 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.
Use of assumptions and estimates The preparation of the consolidated Group 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. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.
GOVERNANCE
Presentation change to cash flow statement The Group has reported the investment in and proceeds from the sale of short-term investments on a net basis for the year to reflect the strategic management of such investments. The previous year’s gross presentation (investment cash flow £1,972m and proceeds of £1,205m) have been netted.
Unrealised gains arising from transactions with joint ventures and associates are eliminated to the extent of the Group’s interest in the entity.
PERFORMANCE REVIEW
Basis of preparation The consolidated Group financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) and IFRS Interpretations Committee (‘IFRIC’) interpretations as endorsed by the European Union, and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated Group 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.
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.
BUSINESS REVIEW
The financial year represents the 52 weeks ended 23 February 2013 (prior financial year 52 weeks ended 25 February 2012). For the UK, the Republic of Ireland and the US, the results are for the 52 weeks ended 23 February 2013 (prior financial year 52 weeks ended 25 February 2012). For all other operations, the results are for the calendar year ended 28 February 2013 (prior financial year ended 29 February 2012).
Joint ventures and associates 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.
OVERVIEW
Notes to the Group financial statements