Sainsbury's Financial reporting Coursework Example | Topics and Well Written Essays - 1750 words

Sainsbury's Financial reporting - Coursework Example The company has a joint ownership with Lloyds Banking Group and also has joint ventures in properties with The British Land Company Plc and Land Securities Group Plc (Reuters, 2011). In financial year 2010 the main joint ventures of the Group were The Harvest Limited Partnership, BL Sainsbury Superstores Limited and Sainsbury Bank Plc. In all these ventures the company has a share of 50 percent. The Directors of the company are accountable for the preparation of Annual Report, Remuneration Report and relevant financial statements as per the applicable regulations. The financial statements of the Company and the Group are prepared in accordance with the International Financial Reporting Standards (IFRS) (J Sainsbury Plc, 2010). Analysis of accounting policies a) At the end of each financial year and also in the event of any impairment indication, there is a review of the carrying value of the tangible and intangible assets by the Group to identify any impairment losses. If such indica tion is revealed then the recoverable value of the asset is calculated to determine the amount of impairment loss. If the cash flows from the assets are not independent of the other assets the Group determines the recoverable amount of the cash-generating-unit (CGU). When there exists objective evidence regarding impairment loss on receivables and loans, then the carrying amount of the financial assets is reduced to the present value of the anticipated future cash flows which is obtained by discounting the financial asset using the original effective rate of interest. For 2010 the total impairment shown in the books of the company is ?23 million. This has been with respect to assets like land & buildings and fixtures &equipments. The depreciation on the assets is provided on the basis of straight line method based on the bases of 50 years or term of the lease in the case of leasehold properties and freehold building and period of 3 to 15 years for fixtures & equipments and vehicles. Good-will is shown as an asset in the balance sheet of the Group in the respective period. It is tested annually for impairment and in the event of an indication of impairment the value of good-will is carried forward at cost minus accumulated losses on impairment. The losses on impairment are shown in the income statement in the year in which it occurs. The impairment loss in respect of the â€Å"equity instruments are not reversed†. If in a following period there is a rise in the fair value of the debt instrument classified as â€Å"available for sale† and this rise can be attributed to the happening of an event, after such loss has been shown in the income statement, then it is reversed through the company’s income statement. As per IAS 36 relating to ‘Impairment of Assets’ for impairment testing each store is treated by the Group as a CGU (cash generating unit). Tesco Plc also applies the same accounting policy for the impairment losses. Like S ainsbury the tangible assets of Tesco such as plant & equipment and property are reviewed as per IAS 36 if indications are found that the carrying amount of the asset may not be realised (Tesco, 2010). b) Sainsbury reported â€Å"Derivative financial instruments† of ?20 million in its balance sheet. The business activities of the Group make it vulnerable to financial risks that may arise in the case of exchange rate fluctuations and adverse movement in the interest rates. These risks are managed by the company using derivative instruments