REG - Tesco Personal FinTesco PLC - Final Results <Origin Href="QuoteRef">TSCO.L</Origin> - Part 3
12/04/2017 07:06
- Part 3: For the preceding part double click ID:nRSL2440Cb
- - 137.4 - 13.6 151.0
Transactions with owners
Dividends to ordinary shareholders 12 - - (50.0) - - (50.0)
Share based payments 32 - - - - 3.7 3.7
Total transactions with owners - - (50.0) - 3.7 (46.3)
Balance at 28 February 2017 122.0 1,097.9 406.2 - 44.4 1,670.5
TESCO PERSONAL FINANCE PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the Year Ended 28 February 2017
Balance at 1 March 2015 122.0 1,097.9 183.1 45.0 22.6 1,470.6
Comprehensive income/(expense)
Profit for the year - - 185.7 - - 185.7
Net losses on available-for-sale investment securities 11 - - - - (2.3) (2.3)
Net losses on cash flow hedges 11 - - - - (2.3) (2.3)
Share of other comprehensive expense of joint venture 20 - - - - (1.0) (1.0)
Total comprehensive income - - 185.7 - (5.6) 180.1
Transactions with owners
Dividends to ordinary shareholders 12 - - (50.0) - - (50.0)
Reclassification of subordinatednotes to liabilities1 - - - (45.0) - (45.0)
Share based payments 32 - - - - 10.1 10.1
Total transactions with owners - - (50.0) (45.0) 10.1 (84.9)
Balance at 29 February 2016 122.0 1,097.9 318.8 - 27.1 1,565.8
1 On 9 January 2014, the Group re-documented both the dated and undated loan notes to ensure full compliance with Capital Requirements Directive IV (CRD IV) regulations. A review in the prior year of the revised loan agreements concluded that the undated notes were more appropriately classified as a liability under the requirements of IAS 32, 'Financial Instruments: Presentation', rather than equity. As a result the total balance of £45.0m was reclassified from equity
to liabilities in the prior year.
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TESCO PERSONAL FINANCE PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
For the Year Ended 28 February 2017
Note Sharecapital Share premium Retained earnings Subordinated notes Other reserves Totalequity
£m £m £m £m £m £m
Balance at 1 March 2016 122.0 1,097.9 314.8 - 27.4 1,562.1
Comprehensive income
Profit for the year - - 152.6 - - 152.6
Net gains on available-for-sale investment securities 11 - - - - 2.1 2.1
Net gains on cash flow hedges 11 - - - - 1.0 1.0
Total comprehensive income - - 152.6 - 3.1 155.7
Transactions with owners
Dividends to ordinary shareholders 12 - - (50.0) - - (50.0)
Share based payments 32 - - - - 3.7 3.7
Total transactions with owners - - (50.0) - 3.7 (46.3)
Balance at 28 February 2017 122.0 1,097.9 417.4 - 34.2 1,671.5
Balance at 1 March 2015 122.0 1,097.9 175.1 45.0 21.9 1,461.9
Comprehensive income/(expense)
Profit for the year - - 189.7 - - 189.7
Net losses on available-for-sale investment securities 11 - - - - (2.3) (2.3)
Net losses on cash flow hedges 11 - - - - (2.3) (2.3)
Total comprehensive income - - 189.7 - (4.6) 185.1
Transactions with owners
Dividends to ordinary shareholders 12 - - (50.0) - - (50.0)
Reclassification of subordinated notes to liabilities1 - - - (45.0) - (45.0)
Share based payments 32 - - - - 10.1 10.1
Total transactions with owners - - (50.0) (45.0) 10.1 (84.9)
Balance at 29 February 2016 122.0 1,097.9 314.8 - 27.4 1,562.1
1 On 9 January 2014, the Group re-documented both the dated and undated loan notes to ensure full compliance with Capital Requirements Directive IV (CRD IV) regulations. A review in the prior year of the revised loan agreements concluded that the undated notes were more appropriately classified as a liability under the requirements of IAS 32, 'Financial Instruments: Presentation', rather than equity. As a result the total balance of £45.0m was reclassified from equity
to liabilities in the prior year.
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TESCO PERSONAL FINANCE PLC
CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS
For the Year Ended 28 February 2017
Group Company
2017 2016 2017 2016
Note £m £m £m £m
Operating Activities
Profit before tax 110.1 187.9 125.3 191.8
Adjusted for:
Non-cash items included in operatingprofit before taxation 37 286.8 192.4 270.7 188.7
Changes in operating assets and liabilities 37 (107.9) (518.5) (157.1) (514.6)
Income taxes received/(paid) 17.2 (7.0) 17.2 (7.0)
Cash flows generated from/(used) in operating activities 306.2 (145.2) 256.1 (141.1)
Investing Activities
Purchase and disposal of intangible assets and property, plant and equipment (46.1) (39.8) (46.1) (39.8)
Purchase of available-for-sale investment securities (95.5) (332.2) (95.5) (332.2)
Sale of available-for-sale investment securities 126.6 211.7 126.6 211.7
Cash flows used in investing activities (15.0) (160.3) (15.0) (160.3)
Financing Activities
Net proceeds received in association with issuance of debt securities - 298.5 - 298.5
Dividends paid to ordinary shareholders 12 (50.0) (50.0) (50.0) (50.0)
Interest paid on subordinated liabilities and notes (4.4) (4.5) (4.4) (4.5)
Cash flows (used in)/generated from financing activities (54.4) 244.0 (54.4) 244.0
Net increase/(decrease) in cash and cash equivalents 236.8 (61.5) 186.7 (57.4)
Cash and cash equivalents at beginning of year 551.8 613.3 493.5 550.9
Cash and cash equivalents at end of year 36 788.6 551.8 680.2 493.5
j
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TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting Policies
Basis of preparation
The Company and Consolidated Financial Statements have been prepared in accordance with International Financial Reporting
Standards (IFRSs) and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of
the International Accounting Standards Board (IASB) as endorsed by the European Union (EU), and those parts of the
Companies Act 2006 applicable to companies reporting under IFRSs.
In these Financial Statements the 'Company' means Tesco Personal Finance plc and the 'Group' means the Company and its
subsidiaries and joint venture. Details of these subsidiaries and joint venture are provided in notes 19 and 20. These
Consolidated Financial Statements comprise the Financial Statements of the Group. The Company has elected to take the
exemption under section 408 of the Companies Act 2006 not to present the Income Statement and Statement of Comprehensive
Income of the Company.
The Company and Consolidated Financial Statements have been prepared under the historical cost convention as modified by
the revaluation of derivative financial instruments and available-for-sale investment securities held at fair value.
The Company and Consolidated Financial Statements are presented in Sterling, which is the functional currency of the Group.
The figures shown in the Financial Statements are rounded to the nearest £0.1 million unless otherwise stated.
New and amended accounting standards adopted by the Group in the year are detailed in note 42.
Going concern
The Directors have completed an assessment of the Group's going concern status, taking into account both current and
projected performance, including projections for the Group's capital and funding position and having regard to the Group's
risk profile. As a result of this assessment, the Directors consider the Group to be in a satisfactory financial position
and have a reasonable expectation that the Group has adequate resources to continue in business for the foreseeable future.
Accordingly, the Directors continue to adopt the going concern basis in preparing the Financial Statements.
Principal accounting policies
A summary of the Group's accounting policies is set out below. These policies have been consistently applied to all of the
years presented, unless otherwise stated.
Basis of consolidation
The Consolidated Financial Statements of the Group comprise the Financial Statements of the Company and all consolidated
subsidiaries, including certain securitisation structured entities, and the Group's share of its interests in a joint
venture, as at 28 February 2017.
Investment in Group undertakings
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an
entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity. The results of subsidiaries are included in the
Consolidated Financial Statements from the date that control commences until the date that control ceases. The Company's
investments in its subsidiaries are stated at cost less any impairment.
Intragroup balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are
eliminated in preparing the Consolidated Financial Statements.
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TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
1. Accounting Policies (continued)
Securitisation structured entities
The Group enters into securitisation transactions in which it assigns Credit Card receivables to a securitisation
structured entity which supports the issuance of securities backed by the cash flows from the securitised Credit Card
receivables. Although none of the equity of the securitisation structured entities is owned by the Company, the nature of
these entities means that the Group has the rights to variable returns from its involvement with these securitisation
structured entities and has the ability to affect those returns through its power over them. As such they are effectively
controlled by the Group and are consolidated on a line by line basis in the Consolidated Financial Statements.
Investment in joint venture
A joint arrangement is an arrangement over which the Group has joint control. Joint control is the contractually agreed
sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous
consent of the parties sharing control. A joint venture is a joint arrangement whereby the Group has rights to a share of
the net assets of the joint arrangement.
The Group's share of the results of a joint venture is included in the Consolidated Income Statement using the equity
method of accounting. The Group's investment in a joint venture is carried in the Consolidated Statement of Financial
Position at cost plus post-acquisition changes in the Group's share of the net assets of the entity, less any impairment.
If the Group's share of losses in a joint venture equals or exceeds its investment in the joint venture, the Group does not
recognise further losses, unless it has incurred obligations to do so or made payments on behalf of the joint venture.
The Company's investment in a joint venture is stated at cost less any impairment.
Revenue recognition
Net interest income recognition
Interest income and expense for all financial instruments measured at amortised cost are recognised using the Effective
Interest Rate (EIR) method.
The EIR method is a method of calculating the amortised cost of a financial asset or financial liability (or group of
financial assets or financial liabilities) and of allocating the interest income or interest expense over the expected life
of the financial asset or financial liability. The EIR is the rate that exactly discounts estimated future cash flows to
the instrument's initial carrying amount. Calculation of the EIR takes into account fees receivable that are an integral
part of the instrument's yield, premiums or discounts on acquisition or issue, early redemption fees and transaction costs.
All contractual and behavioural terms of a financial instrument are considered when estimating future cash flows.
Net fees and commissions income recognition
Fees in respect of services (primarily Credit Card interchange fees) are recognised on an accruals basis when the service
to the customer has been provided. The arrangements are generally contractual and the cost of providing the service is
incurred as the service is rendered. The price is usually fixed and always determinable.
The Group generates commission from the sale and service of Motor and Home insurance policies underwritten by Tesco
Underwriting Limited (TU) or, in a minority of cases, by a third party underwriter. This is based on commission rates which
are independent of the profitability of underlying insurance policies. Similar commission income is also generated from the
sale of white label insurance products underwritten by other third party providers. This commission income is recognised as
such policies are sold, with a provision being recognised for commission expected to be repayable following the
cancellation of policies by customers.
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TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
1. Accounting Policies (continued)
Customer loyalty programmes
The Group participates in the customer loyalty programme operated by Tesco Stores Limited. The programme operates by
allowing customers to accumulate Clubcard points on purchases for future redemption against a range of Tesco products. The
cost of providing Clubcard points to customers is recharged by Tesco Stores Limited to the Group and is treated as a
deduction from net fees and commissions income in the Consolidated Income Statement in the period the costs are incurred.
The Group has no obligation to customers in respect of Clubcard points once the obligation with Tesco Stores Limited is
settled.
Dividend income
Dividends are recognised in the Consolidated Income Statement when the entity's right to receive payment is established.
Taxation
The tax charge or credit included in the Consolidated Income Statement consists of current and deferred tax. Tax is
recognised in the Consolidated Income Statement except to the extent that it relates to items recognised in other
comprehensive income or directly in equity, in which case it is recognised in other comprehensive income or equity,
respectively.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively
enacted by the reporting date.
Deferred tax is provided using the liability method on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the Company and Consolidated Financial Statements. Deferred tax is calculated at
the tax rates that have been enacted or substantively enacted by the reporting date.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against
which deductible temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be realised.
Deferred tax assets and liabilities are offset against each other when there is a legally enforceable right to set-off
current tax assets against current tax liabilities and it is the intention to settle these on a net basis.
30
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
1. Accounting Policies (continued)
Foreign currency translation
Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of
the transaction.
Monetary items denominated in foreign currency are translated at the closing rate as at the reporting date.
Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation
at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the
Consolidated Income Statement, except when deferred in equity as gains or losses from qualifying cash flow hedging
instruments. All foreign exchange gains and losses recognised in the Consolidated Income Statement are presented net in the
Consolidated Income Statement within the corresponding item. Foreign exchange gains and losses on other comprehensive
income items are presented in other comprehensive income within the corresponding item.
In the case of changes in the fair value of monetary assets denominated in foreign currency classified as
available-for-sale, a distinction is made between translation differences resulting from changes in the amortised cost of
the security and other changes in the carrying amount of the security. Translation differences related to the changes in
the amortised cost are recognised in the Consolidated Income Statement, and other changes in the carrying amount, except
impairment, are recognised in equity.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and demand deposits with banks together with short-term highly liquid
investments with short term maturities.
Financial instruments
The Group classifies a financial instrument that it issues as a financial asset, financial liability or an equity
instrument in accordance with the substance of the contractual arrangement. An instrument is classified as a liability if
it creates a contractual obligation to deliver cash or another financial asset, or to exchange financial assets or
financial liabilities on potentially unfavourable terms. An instrument is classified as equity if it evidences a residual
interest in the assets of the Group after the deduction of liabilities.
Financial assets
The Group classifies its financial assets in the following categories: at fair value through profit or loss (FVTPL), loans
and receivables, and available-for-sale. Management determine the classification of its financial assets at initial
recognition. Purchases and sales of financial assets are recognised on the trade date - the date on which the Group commits
to purchase or sell the asset.
Financial assets at FVTPL include financial assets held for trading and those designated at FVTPL at inception. Financial
assets held at FVTPL are recognised at fair value with any gains or losses included in the Consolidated Income Statement in
the period in which they arise. Transaction costs are expensed at the time of initial recognition. Derivative financial
assets are classified as held for trading unless they are accounted for as an effective hedging instrument but are not
separately categorised in the Statement of Financial Position. The Group does not currently hold any financial assets
designated at FVTPL at inception.
31
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
1. Accounting Policies (continued)
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. Subsequent to initial recognition at fair value plus transaction costs, these assets are carried at
amortised cost using the EIR method and adjusted for any impairment losses or adjustments made as part of fair value
hedging arrangements.
Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not
classified in any of the other categories. Subsequent to initial recognition at fair value plus transaction costs, these
financial assets are recorded at fair value, with the movements in fair value recognised in other comprehensive income
until the financial asset is derecognised or impaired, at which time the cumulative gain or loss previously recognised in
other comprehensive income is recognised in the Consolidated Income Statement. For available-for-sale financial assets in
fair value hedge relationships, the element of the fair value movement which relates to the hedged risk is recycled to the
Consolidated Income Statement.
Financial liabilities
All of the financial liabilities held by the Group, other than derivative financial liabilities, are measured at amortised
cost using the EIR method, after initial recognition at fair value. Fair value is calculated as the issue proceeds, net of
premiums, discounts and transaction costs incurred. The Group does not hold any financial liabilities classified as held
for trading. For financial liabilities in fair value hedge relationships, the carrying value is adjusted by the hedged item
(the fair value of the underlying hedged risk) through the Consolidated Income Statement.
Derecognition of financial assets and financial liabilities
Financial assets are derecognised when the contractual rights to receive cash flows have expired or where substantially all
of the risks and rewards of ownership have been transferred and the transfer qualifies for derecognition. Financial
liabilities are derecognised when they have been redeemed or otherwise extinguished.
Collateral furnished by the Group under standard repurchase agreements is not derecognised because the Group retains
substantially all the risks and rewards on the basis of the predetermined repurchase price, therefore the criteria for
derecognition are not met. Credit Card receivables assigned by the Group to a securitisation structured entity do not
qualify for derecognition, as the Group retains substantially all the risks and rewards of ownership of the securitised
Credit Card receivables.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the Company and Consolidated
Statements of Financial Position when there is a legally enforceable right to offset the recognised amounts and there is an
intention to settle on a net basis, or to realise an asset and settle a liability simultaneously.
Impairment of financial assets
The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial
assets is impaired. A financial asset or portfolio of financial assets is impaired and an impairment loss incurred if there
is objective evidence that an event or events since initial recognition of the financial asset or group of financial assets
have adversely affected the amount or timing of future cash flows expected from the financial asset or group of financial
assets.
32
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
1. Accounting Policies (continued)
Financial assets carried at amortised cost
If there is objective evidence that an impairment loss on a financial asset or group of financial assets classified as
loans and receivables has been incurred, the Group measures the amount of the loss as the difference between the carrying
amount of the financial asset or group of financial assets and the present value of estimated future cash flows from the
financial asset or group of financial assets discounted at the EIR of the instrument(s) at initial recognition. Impairment
losses are assessed individually for financial assets that are individually significant and collectively for financial
assets that are not individually significant. In making the collective assessment of impairment, financial assets are
grouped into portfolios on the basis of similar risk characteristics. Future cash flows from these portfolios are estimated
on the basis of the estimated cash recoveries and historical loss experience for financial assets with similar credit risk
characteristics.
Impairment losses are recognised in the Consolidated Income Statement and the carrying amount of the financial asset or
group of financial assets is reduced by establishing an allowance for impairment losses. If, in a subsequent year, the
amount of the impairment loss reduces and the reduction can be related objectively to an event after the impairment was
recognised, the previously recognised loss is reversed by adjusting the allowance.
When a loan is deemed uncollectable it is written off against the related provision after all of the necessary procedures
have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written
off received from customers or other third parties are recognised directly in the Consolidated Income Statement as a
reduction in the loan impairment charge for the year.
Financial assets classified as available-for-sale
In the case of debt instruments classified as available-for-sale, the recognition of an impairment loss occurs if there is
objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the
financial asset (a loss event), and that have an impact on the estimated future cash flows of the financial asset and which
can be reliably measured. If any such evidence exists for available-for-sale financial assets, the cumulative loss -
measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that
financial asset previously recognised in the Consolidated Income Statement - is removed from equity and recognised in the
Consolidated Income Statement. If, in a subsequent period, the fair value of a debt instrument classified as
available-for-sale increases, and the increase can be objectively related to an event occurring after the impairment loss
was reported in the Consolidated Income Statement, the impairment loss is reversed through the Consolidated Income
Statement.
Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments for the purpose of providing an economic hedge to its exposures to interest
rate and foreign exchange risks as they arise from operating, financing and investment activities. The Group does not hold
or issue derivative financial instruments for trading purposes. Derivative financial instruments are initially recognised
at fair value on the contract date and are remeasured at their fair value at subsequent reporting dates.
33
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
1. Accounting Policies (continued)
Hedge accounting
The Group designates certain hedging instruments as either fair value hedges or cash flow hedges, where it is efficient to
do so and the IAS 39, 'Financial instruments: Recognition and measurement', criteria are met. The Group applies hedge
accounting as follows:
Hedge relationships are classified as fair value hedges where the derivative financial instruments hedge the change in the
fair value of fixed rate financial assets or financial liabilities due to movements in interest rates.
Hedge relationships are classified as cash flow hedges where the derivative financial instruments hedge the inflation risk
on an index linked issued bond.
To qualify for hedge accounting, the Group documents, at the inception of the hedge: the hedging risk management strategy;
the relationship between the hedging instrument and the hedged item or transaction; and the nature of the risks being
hedged. The Group also documents the assessment of the effectiveness of the hedging relationship, to show that the hedge
has been and will be highly effective on an ongoing basis.
Fair value hedges
Changes in the fair value of derivative financial instruments that are designated as fair value hedges are recognised in
the Consolidated Income Statement. The hedged item is also adjusted for changes in fair value attributable to the hedged
risk, with the corresponding adjustment made in the Consolidated Income Statement.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item is
amortised to the Consolidated Income Statement over the remaining period to maturity.
Cash flow hedges
Changes in the fair value of the derivative financial instruments that are designated as hedges of future cash flows are
recognised directly in other comprehensive income and the ineffective portion is recognised immediately in the Consolidated
Income Statement. Amounts recognised in other comprehensive income are recycled to the Consolidated Income Statement when
equivalent amounts of the hedged item are recognised in profit or loss.
When the hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that time is recognised immediately in the Consolidated Income Statement.
Derivative financial instruments not in hedge accounting relationships
Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in
the Consolidated Income Statement as they arise.
Impairment of non-financial assets
Non-financial assets are reviewed for impairment when there are indications that the carrying value may not be recoverable.
In the event that an asset's carrying amount is determined to be greater than its recoverable amount, an impairment loss
is recognised immediately in the Consolidated Income Statement and the carrying value of the asset is written down by the
amount of the loss. The recoverable amount is the higher of the asset's fair value less costs to sell and its value in
use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units). Non-financial assets for which an impairment loss has been recognised are
reviewed for possible reversal of the impairment at each reporting date.
34
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
1. Accounting Policies (continued)
Property, plant and equipment
Items of property, plant and equipment are stated at historical cost less accumulated depreciation and any impairment
losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent
expenditure is included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Group. All other repairs and maintenance
costs are charged to the Consolidated Income Statement in the period in which they are incurred.
Depreciation is charged to the Consolidated Income Statement on a straight-line basis so as to allocate the costs less
residual values over the lower of the useful life of the related asset and, for leasehold improvements, the expected lease
term. Depreciation commences on the date that the assets are brought into use. Work in progress assets are not depreciated
until they are brought into use and transferred to the appropriate category of property, plant and equipment. Estimated
useful lives are:
· Plant and equipment 2 to 8 years
· Fixtures and fittings 4 to 14 years
· Computer hardware 3 to 10 years
· Freehold buildings 40 years
· Leasehold improvements 15 to 20 years
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Gains and
losses on disposals are determined by comparing proceeds with carrying amount. These are included in administrative
expenses in the Consolidated Income Statement.
During the year, the Group reassessed the useful life of certain of its tangible fixed assets, reducing the expected life
to a maximum of one year. Refer to note 23 for further detail.
Intangible assets
Acquired intangible assets
Intangible assets that are acquired by the Group are stated at historical cost less accumulated amortisation and any
impairment losses. Amortisation is charged to the Consolidated Income Statement on a straight-line basis over the estimated
useful lives. The Group's intangible assets are computer software, for which the estimated useful lives are 3 to 10 years.
Internally generated intangible assets - research and development expenditure
Research costs are expensed in the Consolidated Income Statement as incurred.
Development expenditure incurred on an individual project is capitalised only if all of the following criteria are
demonstrated:
· an asset is created that can be identified (such as software);
· it is probable that the asset created will generate future economic benefits; and
· the development cost of the asset can be measured reliably.
Following the initial recognition of development expenditure, the cost is amortised over the estimated useful life of the
asset created. Amortisation commences on the date that the asset is brought into use. Work in progress assets are not
amortised until they are brought into use and transferred to the appropriate category of intangible assets.
35
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
1. Accounting Policies (continued)
During the year, the Group reassessed the useful life of certain of its intangible fixed assets, reducing the expected life
to a maximum of one year. Refer to note 22 for further detail.
Leases
If a lease agreement, in which the Group is a lessee, does not transfer the risks and rewards of ownership of the asset,
the lease is recorded as an operating lease.
Operating lease payments are charged to the Consolidated Income Statement on a straight-line basis over the period of the
lease. Where an operating lease is terminated before the lease period has expired, any payment required to be made to the
lessor as compensation is charged to the Consolidated Income Statement in the period in which the termination takes place.
The Group has entered into a number of operating leases for office buildings.
Employee benefits
The Group accounts for pension costs on a contributions basis in line with the requirements of IAS 19 'Employee Benefits'.
The Group made contributions in the year to a funded defined benefit scheme and a funded defined contribution scheme. Both
of these schemes are operated by Tesco Stores Limited.
IAS 19 requires that, where there is no policy or agreement for sharing the cost of a defined benefit scheme across the
subsidiaries, the Sponsoring employer recognises the net defined benefit cost of a defined benefit scheme. The Sponsoring
employer of the funded defined benefit scheme is Tesco Stores Limited and the principal pension plan is the Tesco PLC
pension scheme.
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 Tesco PLC shares or rights over shares (equity-settled transactions) or in
exchange for entitlements to cash based payments based on the value of the shares (cash-settled transactions).
The fair value of employee share option plans is calculated at the grant date using the Black-Scholes model. The resulting
cost is recognised in the Consolidated Income Statement over the vesting period. The value of the charge is adjusted to
reflect expected and actual levels of vesting.
The grant by Tesco PLC of options over its equity instruments to the employees of the Group is treated as a capital
contribution in equity. The social security contribution payable in connection with the grant of the share options is
considered an integral part of the grant itself, and the charge is treated as a cash-settled transaction.
Provision for liabilities and charges and contingent liabilities
A provision is recognised where there is a present legal or constructive obligation as a result of a past event, it is more
likely than not that an outflow of economic resources will be required to settle the obligation, and the amount can be
reliably estimated.
Provisions are measured at the present value of the expenditure expected to be required to settle the obligation.
A contingent liability is a possible obligation which is dependent on the outcome of uncertain future events not wholly
within the control of the Group, or a present obligation where an outflow of economic resources is not likely or the amount
cannot be reliably measured.
Contingent liabilities are not recognised in the Company or Consolidated Statement of Financial Position but are disclosed
unless the possibility of an outflow of economic resources is remote.
36
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
1. Accounting Policies (continued)
Dividends paid
Dividends are recognised in equity in the period they are approved by the Group's Board.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker. The chief operating decision-maker is the person or group that allocates resources to and assesses the
performance of the operating segments of an entity. The Group has determined the Board of Directors as its chief operating
decision-maker.
During the year, the reportable segments were reduced from two to one segment. Refer to note 3 for further detail.
Sale and repurchase agreements
Investment securities sold subject to a commitment to repurchase them at a predetermined price are retained on the Company
and Consolidated Statements of Financial Position when substantially all of the risk and rewards of ownership remain with
the Group. The counterparty liability is included in deposits from banks.
Encumbered assets
During the year, the Group amended the methodology used to identify encumbered assets to align to definitions used in
calculating the Group's Pillar 3 encumbrance disclosures.
This amendment does not have any effect on the Group's primary statements.
37
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
2. Critical Accounting Estimates and Judgements in Applying Accounting Policies
The reported results of the Group are sensitive to the accounting policies, assumptions and estimates that underlie the
preparation of its Financial Statements. The Group's principal accounting policies are set out in note 1. United Kingdom
company law and IFRSs require the Directors, in preparing the Group's Financial Statements, to select suitable accounting
policies, apply them consistently and
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