Tesco plc Annual Report and Financial Statements 2012

Notes to the Group financial statements
Note 1 Accounting policies continued
The associated cumulative gain or loss is reclassified from the other
comprehensive income and recognised in the Group Income Statement
in the same period or periods during which the hedged transaction
affects the Group Income Statement. The classification of the effective
portion when recognised in the Group Income Statement is the same
as the classification of the hedged transaction. Any element of the
remeasurement of the derivative instrument which does not meet the
criteria for an effective hedge is recognised immediately in the Group
Income Statement within finance income or costs.
Hedge accounting is discontinued when the hedging instrument expires
or is sold, terminated or exercised, or no longer qualifies for hedge
accounting. At that point in time, any cumulative gain or loss on the
hedging instrument recognised in equity is retained in the Group
Statement of Changes in Equity until the forecasted transaction occurs
or the original hedged item affects the Group Income Statement. If a
forecasted hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognised in the Group Statement of Changes
in Equity is reclassified to the Group Income Statement.
Net investment hedging
Derivative financial instruments are classified as net investment hedges
when they hedge the Group’s net investment in an overseas operation.
The effective element of any foreign exchange gain or loss from
remeasuring the derivative instrument is recognised directly in other
comprehensive income. Any ineffective element is recognised immediately
in the Group Income Statement. Gains and losses accumulated in other
comprehensive income are included in the Group Income Statement when
the foreign operation is disposed of.
Treatment of agreements to acquire non-controlling interests
The Group has entered into a number of agreements to purchase the
remaining shares of subsidiaries with non-controlling interests.
The net present value of the expected future payments are shown as a
financial liability. At the end of each period, the valuation of the liability is
reassessed with any changes recognised in the Group Income Statement
within finance income or costs.
Provisions
Provisions are measured at the present value of the expenditures expected
to be required to settle the obligation using a pre-tax rate that reflects
current market assessments of the time value of money and the risks
specific to the obligation. The increase in the provision due to passage
of time is recognised as interest expense.
Provisions for onerous leases are recognised when the Group believes
that the unavoidable costs of meeting the lease obligations exceed the
economic benefits expected to be received under the lease. Provisions
for dilapidation costs are recognised on a lease by lease basis.
Other recent accounting developments
As of the date of authorisation of these financial statements, the following
standards were in issue but not yet effective and not yet been endorsed by
the EU. The Group has not applied these standards in the preparation of
the financial statements:
�� IAS 1 (Amended) ‘Financial statement presentation’ regarding other
comprehensive income ‘Presentation of financial statements’ is effective
from periods commencing on or after 1 July 2012. The main change
from this amendment is to require entities to group items presented
in ‘other comprehensive income’ (‘OCI’) on the basis of whether they are
potentially reclassifiable to the Group Income Statement subsequently
(reclassification adjustments). The amendments do not address which
items are presented in OCI.
100 Tesco PLC Annual Report and Financial Statements 2012
�� IAS 19 (Amended) ‘Employee benefits’ is effective from periods
commencing on or after 1 January 2013. It eliminates the corridor
approach and requires immediate recognition of all actuarial gains and
losses in the other comprehensive income, immediate recognition of all
past service costs and the replacement of interest cost and expected
return on plan assets with a net interest amount that is calculated by
applying the discount rate to the net defined benefit liability/asset.
�� IFRS 9 ‘Financial instruments’ is effective from periods commencing
on or after 1 January 2015. It is the first standard issued as part of a
wider project to replace IAS 39. It retains but simplifies the mixed
measurement model and establishes two primary measurement
categories for financial assets: i) amortised cost and ii) fair value.
The basis of classification depends on the entity’s business model
and the contractual cash flow characteristics of the financial asset.
�� IFRS 10 ‘Consolidated financial statements’ is effective from periods
commencing on or after 1 January 2013. It builds on existing principles
by identifying the concept of control as the determining factor in
whether an entity should be included within the consolidated financial
statements of the parent company. It also provides additional guidance
to assist in the determination of control where this is difficult to assess.
�� IFRS 11 ‘Joint arrangements’ is effective from periods commencing
on or after 1 January 2013. It is a more realistic reflection of joint
arrangements by focusing on the rights and obligations of the
arrangement rather than its legal form. There are now only two
types of joint arrangement: joint operations and joint ventures.
�� IFRS 12 ‘Disclosures of interests in other entities’ is effective from
periods commencing on or after 1 January 2013. It includes the
disclosure requirements for all forms of interests in other entities,
including joint arrangements, associates, special purpose vehicles
and other off balance sheet vehicles.
�� IFRS 13 ‘Fair value measurement’ is effective from periods commencing
on or after 1 January 2013. It aims to improve consistency and reduce
complexity by providing precise definition of fair value and single
source of fair value measurement and disclosure requirements for
use across IFRSs.
�� IAS 27 (Amended) ‘Separate financial statements’ is effective from
periods commencing on or after 1 January 2013. It includes the
provisions on separate financial statements that are left after the
control provisions of IAS 27 have been included in the new IFRS 10.
�� IAS 28 (Amended) ‘Associates and joint ventures’ is effective from
periods commencing on or after 1 January 2013. It includes the
requirements for joint ventures, as well as associates, to be equity
accounted following the issue of IFRS 11.
�� IFRS 7 (Amended) ‘Financial instruments: Disclosures’ and IAS 32
(Amended) Financial instruments: Presentation’ are effective from
1 January 2013 and 2014 respectively. The IAS 32 amendment clarifies
some of the requirements for offsetting financial assets and financial
liabilities on the statement of financial position while the IFRS 7
amendment will require more extensive disclosures than are
required under IFRS.
Use of non-GAAP profit measures – underlying profit before tax
The Directors believe that underlying profit before tax and underlying
diluted earnings per share measures provide additional useful information
for shareholders on underlying trends and performance. These measures
are used for performance analysis. Underlying profit is not defined by IFRS
and therefore may not be directly comparable with other companies’
adjusted profit measures. It is not intended to be a substitute for, or
superior to IFRS measurements of profit.