Tesco’s Accounting Policies
Tesco Plc. Is a leading U.K. based retailing companies with its operations in different markets. The company’s consolidated balance sheet for three years is evaluated in this paper. It could be indicated that the company follows International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) to prepared its consolidated balance sheet. The company prepares its balance sheet according to ‘IAS 1 – Presentation of Financial Statements’ (“IAS 1 — Presentation of Financial Statements”). The company uses the accounting equation given below for preparing its balance sheet. The following analysis provides an evaluation of financial performance of Tesco along with the discussion of accounting policy and any erros reported by the company.
Tesco’s Assets
The summary of the company’s total assets is provided in Table 1. The analysis indicates that the company’s total assets declined over the three-year period.
Table 1. Tesco’s Assets.
Sources: (“Tesco Annual Report and Financial Statements 2015” 87; “Tesco Annual Report and Financial Statements 2016” 85).
Further analysis indicates that the major reduction was in the company’s non-current assets value. The company’s current assets declined significantly in 2015 but increased in 2016 (“Tesco Annual Report and Financial Statements 2016” 85). The balance sheet of the company indicated that the company’s goodwill was impaired and recorded according to IAS 38 — Intangible Assets (“IAS 38 — Intangible Assets”). The book value of intangible assets of the company was compared with their market value to determine the impairment of value for the year. The company sold its property, plant, and equipment (PPE) in 2016 and reported its PPE at their historical cost less accumulated depreciation according to IAS 16 — Property, Plant, and Equipment (“IAS 16 — Property, Plant, and Equipment”). The company also had leased property, and it reported its value on the basis of assumptions related to discount rates, margin, and growth rates (“Tesco Annual Report and Financial Statements 2016” 88). Furthermore, the company recorded its inventories at lower of its cost or fair value after deducting selling expenses (“Tesco Annual Report and Financial Statements 2016” 90). The company follows IAS 2 — Inventories for recording and reporting its inventories (“IAS 2 — Inventories”).
Tesco’s Liabilities
Table 2 indicates that the company’s total liabilities slightly declined in the last three years. Further analysis indicates that the company’s current liabilities declined and its non-current liabilities increased over the three-year period.
Table 2. Tesco’s Liabilities.
Sources: (“Tesco Annual Report and Financial Statements 2015” 87; “Tesco Annual Report and Financial Statements 2016” 85).
The company’s liabilities include interest-bearing borrowings and trade payables that were recorded initially at their fair value. The effective interest method was then used to determine their amortized cost for later years (“Tesco Annual Report and Financial Statements 2016” 92).
Tesco’s Equity
The company’s equity declined in the last three years. A major decline in the equity was reported in 2015 because of the reduction in the company’s retained earnings. The company faced major challenges due to the lack of concentration on its primary U.K. market. Other companies such as Sainsbury’s and Aldi gained market share as they offered better value and service to customers than Tesco.
Table 3. Tesco’s Equity.
Sources: (“Tesco Annual Report and Financial Statements 2015” 87; “Tesco Annual Report and Financial Statements 2016” 85).
The company’s equity included share capital issued at the market price and share premium. It also included retained earnings of the company and other reserves. The other reserves were related to foreign currency translations.
Overall, it could be concluded that the company’s financial performance declined in the last three years. The company’s accounting policies related to assets, liabilities, and equity are based on IAS and IFRS. There are no errors and omissions reported by the company and its auditors.
Works Cited
“IAS 1 — Presentation of Financial Statements.”IAS Plus, Web.
“IAS 16 — Property, Plant and Equipment.”IAS Plus, Web.
“IAS 2 — Inventories.”IAS Plus, Web.
“IAS 38 — Intangible Assets.”IAS Plus, Web.
“Tesco Annual Report and Financial Statements 2015.” Tesco Plc., Web.
“Tesco Annual Report and Financial Statements 2016.”Tesco Plc., Web.