Annual Report and Financial Statements 2007 - Tesco PLC

Note 1 Accounting policies continued
The recoverable amount is the higher of fair value less costs to
sell, and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset.
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 as an
expense immediately.
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 as income immediately.
Inventories
Inventories comprise goods held for resale and properties held
for, or in the course of, development and 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 Balance Sheet consist of cash
at bank and in hand and 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. This condition is regarded as met
only when the sale is highly probable and the asset (or disposal
group) is available for immediate sale in its present condition.
Management must be committed to the sale and it should be
expected to be completed within one year from the date of
classification.
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.
Pensions and similar obligations
The Group accounts for pensions and other post-employment
benefits (principally private healthcare) under IAS 19 ‘Employee
Benefits’.
In respect of defined benefit plans, obligations are measured
at discounted present value (using the projected unit credit
method) whilst plan assets are recorded at fair value. The
operating and financing costs of such plans are recognised
separately in the Income Statement; service costs are spread
systematically over the expected service lives of employees and
financing costs are recognised in the periods in which they
arise. Actuarial gains and losses are recognised immediately
in the Statement of Recognised Income and Expense.
Payments to defined contribution schemes are recognised
as an expense as they fall due.
Share-based payments
Employees of the Group receive part of their remuneration
in the form of share-based payment transactions, whereby
employees render services in exchange for shares or rights
over shares (equity-settled transactions).
The fair value of employee share option plans is calculated at
the grant date using the Black-Scholes model. In accordance
with IFRS 2 ‘Share-based payment’, the resulting cost is
charged to the Income Statement over the vesting period.
The value of the charge is adjusted to reflect expected and
actual levels of vesting.
Taxation
The tax expense included in the Income Statement consists
of current and deferred tax.
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted by
the Balance Sheet date.
Tax is recognised in the Income Statement except to the extent
that it relates to items recognised directly in equity, in which
case it is recognised in equity.
Deferred tax is provided using the Balance Sheet liability
method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes.
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NOTES TO THE GROUP
FINANCIAL STATEMENTS