ACFI127 | Accounting and Finance | A Case Study on Tesco Plc

Introduction

One of the major requirements of the business organizations is to provide the investors and other users with all the accounting and financial information through different financial reports. It is expected that all these financial statements will reflect the true financial position of the business organizations. However, in the recent years, most of the business organizations are not recognizing all the losses and gains in the profit and loss statement and other statements; and this aspect is creating confusion and complexity for the users in understanding the consolidated financial statements. This report involves in the analysis of the financial statements of Tesco Plc.

Discussion

Tesco Plc is a British multinational retailer. It can be seen in the 2018 Annual Report of Tesco that the company has provided all the accounting and financial information of their business with the help of financial statements like group income statement, group statement of comprehensive income or loss, balance sheet, cash flow statement and the statement of change in equity. From the notes to the financial statements of Tesco, it can be observed that the company has prepared and presented their financial statements as per the regulations of International Financial Reporting Standards (tescoplc.com 2018). At the same time, the company also follows the principles Companies Act 2006. In this context, it needs to be mentioned that IFRS is an international accounting standard and it plays a significant role in the correct preparation and representation of the financial statements so that they can reflect the true financial position of the companies. One major condition of IFRS is that the companies are needed to take into consideration all the profits and losses of the companies so that the financial situation of them can correctly reflect (tescoplc.com 2018).

From the 2018 Annual Report of Tesco Plc, it can be observed that the company has released all the information about the losses, gains, assets and liabilities through three major financial statements; they are Group Income Statement, Group Statement of Comprehensive Income/(loss) and Group Balance Sheet (tescoplc.com 2018). The major elements of these statements are discussed below in relation to the main statement of the report:

In Tesco Plc, the main purpose behind the preparation of the income statement is to show the revenue and expenses of the business so that net profit or loss can be showed. From the income statement of Tesco Plc, it can be seen that the company has taken into consideration all the gains and losses in order to reach to net profit or loss for the year (Henderson et al. 2015). Tesco Plc has considered profit or losses from property related items of their business. At the same time, they have considered the profit or loss from the joint venture and associates. It can also be seen that Tesco Plc has considered the finance income as an important factor. At the time to get to the profit, taxation expenses have also been taken into consideration (Edwards 2013).

This same pattern can also be seen in case of the preparation of group statement of comprehensive income or loss. This statement shows that Tesco Plc has taken into consideration the gains or losses from cash flow hedge; they net fair value gains or losses and reclassification of the income statement of the company (Khan 2015).There are all many factors that have been considered while computing the comprehensive income or loss for the year. Thus, this statement is also an evidence that Tesco Plc has considered all the gains and losses required for getting the comprehensive income or loss (Weil, Schipper and Francis 2013).

Another major important statement is the group balance sheet. This financial statement of Tesco Plc shows all the assets and liabilities considered by Tesco Plc in the financial year. Tesco Plc has provided information of all of their assets in the form of non-current assets and current assets. On the other hand, the company has provided all the information about their liabilities in the form of current liabilities and non-current liabilities (Bazley et al. 2013). These sections under the assets and liabilities consist of all the required asset and liabilities of Tesco Plc. Some important assets are investment property, loans and advances, current tax assets, derivative financial instrument, cash and cash equivalent and others. Some important liabilities are borrowings, provisions, customer deposits and deposits from banks, deferred tax liabilities and others (May 2013).

Apart from the above discussed financial statements, Tesco Plc has provided crucial information related to their assets, liabilities, gains and losses in the notes to the financial statements. These notes include all the required justification as well as clarification on various financial as well as accenting treatments carried out by the Tesco Plc. The users of the financial statements can easily refer to these notes to the financial statements at the time to analyze different dimensions of the financial statements of Tesco Plc (Sharma and Panigrahi 2013). 

Conclusion

The above discussion provides an overview of three main financial statements of Tesco Plc that are necessary for gaining information about the financial standing of the company. It can be seen from the above discussion that Tesco Plc has provided all the information of their incomes as well as losses in the income statement. At the same time, the company has also considered the crucial gain and loss factors in the comprehensive income statement. Information of all the assets as well as liabilities can be seen in the balance sheet of Tesco Plc in the presence of different segmentation. At the same time, information in the notes to the financial statements plays an important part in clearing the confusion of the users as they contain all the required clarification as well as justification. Moreover, these notes to the financial statements support the valuation of assets and calculation of losses and profits with the help of accounting regulations. Thus, one can counter the provided statement with the help of this analysis as this analysis states that Tesco Plc does not manipulate with their gains, losses and assets as they have taken into consideration all these aspects. For this reason, these financial statements of Tesco Plc do reflect the true financial standing of the company. Hence, this discussion proves the provided statement wrong as companies provide all the true financial information by complying with all the accounting rules and regulations.

References

Bazley, M., Hancock, P., Fisher, C., Lovell, A., Berk, J., DeMarzo, P., Berk, J. and DeMarzo, P., 2013. Financial Accounting: An Integrated. Thomson Pty Ltd, South Melbourne.

Edwards, J.R., 2013. A History of Financial Accounting (RLE Accounting). Routledge.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Khan, M., 2015. Accounting: Financial. In Encyclopedia of Public Administration and Public Policy, Third Edition-5 Volume Set (pp. 1-6). Routledge.

May, G.O., 2013. Financial accounting. Read Books Ltd.

Sharma, A. and Panigrahi, P.K., 2013. A review of financial accounting fraud detection based on data mining techniques. arXiv preprint arXiv:1309.3944.

Tescoplc.com. (2018). Annual Report and Financial Statements 2018. [online] Available at: https://www.tescoplc.com/media/474793/tesco_ar_2018.pdf [Accessed 18 Jul. 2018].

Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.