Tesco plc has presented the company’ s financial statements in compliance with IFRS as per the requirement of the European Commission. An analysis of the accounting policies mentioned in both the companies’ annual reports, reveals several significant reporting differences reflective of the accounting standards followed by the companies. Tesco plc has reported the company’ s goodwill as an asset at the date of acquisition while apportioning it to every single cash-generating business unit that is expected to benefit from it. The company doesn’ t record the amortization of goodwill as per the rules of IAS 36/39 and IFRS 3; rather it reviews the impairment of goodwill on an annual basis at the minimum owing to the recoverable amount of all the cash-generating units associated with goodwill.
If the company sells off any goodwill associated subsidiary, it records the attributable amount of goodwill as gain or loss on disposal i. e., as the extraordinary gains or losses (Tesco plc, Accounting Policies Note, p48). In order to test the good for any impairment, the company utilizes cash flow projection method to estimate the recoverable value of cash-generating units while assuming the values for discount rates, growth rates and the expected change in margins.
Target Corporation has presented goodwill along with the other intangible assets at the value of acquisition cost less amortization as it is allowed under the US GAAP. The amortization is recorded on the straight-line method. The company also has a policy of not amortizing some of its assets and reviews them annually for impairment tests. Target Corporation uses the discounted cash flow models to test the goodwill for impairment on the fair value (Target Corporation, Note 15, p31).
The deferred tax policy of Tesco plc accounts for temporary discrepancies between the amounts of assets and liabilities while using the Balance Sheet liability method. The company calculates the deferred tax on the basis of expected rates and is reflected in the income statement.
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