Tesco - £5bn loss
Discussion
NinjaPower said:
Vaud said:
Countdown said:
Basically
You bought your house for £10bn. The surveyor has just valued it at £5bn. You've just lost £5bn
Cr Fixed Assets
Dr Reserves
My guess is that the CEO is writing everything down basically so that all the bad news can be blamed on the predecessor.
This. Get rid of all the bad news.You bought your house for £10bn. The surveyor has just valued it at £5bn. You've just lost £5bn
Cr Fixed Assets
Dr Reserves
My guess is that the CEO is writing everything down basically so that all the bad news can be blamed on the predecessor.
Most company books are based on "what would you like the answer to be?"
In the finance/markets sector I believe the practice is called 'Kitchen-Sinking'.
Basically you throw everything bad including the kitchen sink into the bad news pile so you can get it all out of the way (and blame the last CEO) before attempting to move the company forward.
Countdown said:
Basically
You bought your house for £10bn. The surveyor has just valued it at £5bn. You've just lost £5bn
Cr Fixed Assets
Dr Reserves
My guess is that the CEO is writing everything down basically so that all the bad news can be blamed on the predecessor.
How does this translate to a loss when you haven't sold it yet?You bought your house for £10bn. The surveyor has just valued it at £5bn. You've just lost £5bn
Cr Fixed Assets
Dr Reserves
My guess is that the CEO is writing everything down basically so that all the bad news can be blamed on the predecessor.
It's a long time since I studied accounts but isn't it only depreciation that counts as a loss, revaluation is some kind of balance sheet thing.
Or am I the one talking Arthur Andersen accounting?
Maybe the Tesco losses are all about getting rid of their foreign stuff?
tumble dryer said:
FredClogs said:
So share price will rise after the announcement?
...and your point, caller?DoubleByte said:
Countdown said:
Basically
You bought your house for £10bn. The surveyor has just valued it at £5bn. You've just lost £5bn
Cr Fixed Assets
Dr Reserves
My guess is that the CEO is writing everything down basically so that all the bad news can be blamed on the predecessor.
How does this translate to a loss when you haven't sold it yet?You bought your house for £10bn. The surveyor has just valued it at £5bn. You've just lost £5bn
Cr Fixed Assets
Dr Reserves
My guess is that the CEO is writing everything down basically so that all the bad news can be blamed on the predecessor.
It's a long time since I studied accounts but isn't it only depreciation that counts as a loss, revaluation is some kind of balance sheet thing.
Or am I the one talking Arthur Andersen accounting?
Maybe the Tesco losses are all about getting rid of their foreign stuff?
I would think that all those stores that Tesco built and will not now be opening will be sold off at a substantial loss over the next few years - if they can find buyers. Therefore, they are recognising these losses now.
There may also be some recognition of further over stated profits in previous years which they are now having to reverse. In other words, in previous years they announced profits which were generated partly by under stating costs or overstating income, and they are now having to correct that.
DoubleByte said:
How does this translate to a loss when you haven't sold it yet?
It's a long time since I studied accounts but isn't it only depreciation that counts as a loss, revaluation is some kind of balance sheet thing.
Or am I the one talking Arthur Andersen accounting?
Maybe the Tesco losses are all about getting rid of their foreign stuff?
It's an "accounting" loss rather than a "cash" loss, but it still needs to be recorded as a loss because of accounting rules and regs. (P.s. it's the same as depreciation. Just because you depreciate something, you haven't actually ,ade a cash loss until you sell or scrap it)It's a long time since I studied accounts but isn't it only depreciation that counts as a loss, revaluation is some kind of balance sheet thing.
Or am I the one talking Arthur Andersen accounting?
Maybe the Tesco losses are all about getting rid of their foreign stuff?
Assets have to be recorded at the lower of Cost or Net Realisable Value. Tesco are saying the NRV is £5bn less than the carrying value on the Balance Sheet
FredClogs said:
No point, I'm no Gordon Gecko but I took a punt on some Tesco shares at the end of last year and thought I'd keep them for a long while but if they're going to fall of a cliff tomorrow I might try to get out, I am also aware these sort of announcements don't always effect the share price too badly, I was wondering what folk thought.
Sorry. My mistake. Completely.Dunno, is the short answer. It could go either way in the short term, but longer term(ish) i'd think it can only go up - given the headline figures being deducted from the balance sheet.
Longer term(ish) is now roughly equivalent to a political party's duration at home sweet home. IMO
As in lots of things today, increasingly, we're being drawn into the short-
Y'know. The one that doesn't really exist.
DoubleByte said:
How does this translate to a loss when you haven't sold it yet?
It's a long time since I studied accounts but isn't it only depreciation that counts as a loss, revaluation is some kind of balance sheet thing.
Or am I the one talking Arthur Andersen accounting?
Maybe the Tesco losses are all about getting rid of their foreign stuff?
Just to add to what others have said:It's a long time since I studied accounts but isn't it only depreciation that counts as a loss, revaluation is some kind of balance sheet thing.
Or am I the one talking Arthur Andersen accounting?
Maybe the Tesco losses are all about getting rid of their foreign stuff?
Assets like Property, Plant and Equipment can be held on either a cost basis (what you originally paid for it) or revaluation basis (the fair value is assessed every year and adjusted accordingly). Under the latter:
If a revaluation results in a higher fair value than the asset is current measured at, the gain goes through Other Comprehensive Income (which follows the Income Statement) and ends up in the equity section of the bank statement.
Dr Asset
Cr Revaluation Reserve
When the revalued asset is eventually sold, the revaluation reserve is transferred to retained earnings - i.e. it is just a movement on the balance sheet from one Equity caption to another. It does not go near the Profit and Loss statement.
Dr Revaluation Reserve
Cr Retained Earnings
Conversely, if the revaluation results in a lower fair value, an impairment loss is recognised immediately as an expense through the Profit and Loss.
Dr Impairment Loss (P&L)
Cr Asset
The differing treatments being on the grounds of prudence.
The exceptions are where you're revaluing a previously revalued asset:
If the original revaluation upwards resulted in a revaluation reserve, a subsequent impairment loss can be offset against the revaluation reserve with any impairment loss exceeding the reserve then treated as an expense like normal:
Dr Revaluation Reserve
Dr Impairment loss (P&L) (if the impairment > available revaluation surplus)
Cr Asset
Equally if the asset has previously been impaired through the Profit and Loss, a higher revaluation can be put through the profit and loss to offset that previous loss with any remainder going to the revaluation reserve
Dr Asset
Cr Impairment loss (P&L)
Cr Revaluation Reserve (if the gain on revaluation > previous impairment losses).
Depreciation applies as normal with appropriate adjustments for the new fair value of the asset.
In Tesco's case, they actually hold their tangible fixed assets on the cost model (i.e. what they paid for less any impairment recognised). Management are supposed to conduct an impairment review each year and if they identify any indicators of impairment, they reduce the carrying amount value of the asset according as
Dr Impairment Loss (P&L)
Cr Asset
They can't revalue assets higher than the historic cost but if there are indicators the conditions that necessitated an impairment loss no longer apply, they can increase the carrying amount again (but not higher than original cost). Per the Group's accounting policy this is treated as an immediate credit to the Income statement, which is reasonable as it is reversing a previous impairment loss.
Dr Asset
Cr Impairment Loss (P&L)
At their prior year end, Tesco had Property, Plant and Equipment worth £24.5 billion (net after depreciation and previously recognised impairments). They also had Goodwill and other intangibles worth £3.8 billion - mostly relating to their international expansions and Tesco Bank.
One probable cause not mentioned so far in the thread will be the switch away from claiming rebates from their suppliers at the end of the year for selling more than agreeing towards a fixed but lower upfront price, which will result in a gap where they no longer receive rebates but do not yet enjoy the lower prices. The new Chief Exec was saying there would also be of the "less diving for the line" that occurred under his predecessor - manipulating year end profitability by running down stock levels, cutting Xmas staff quickly, etc. (But watch for a return next year!)
And last but not least is the general tough trading conditions of the business, trapped as they are between the discount stores (Aldi and Lidl) at one end and the premium supermarkets at the other.
To put it in perspective, RBS reported a £24 billion in 2008 while Vodafone had £14 billion losses more than once in mid 2000s. Following Deepwater Horizon, BP reported a loss of $17.2 billion in a single quarter due to the provisions and write downs they took (the annual result wasn't quite so bad due to the other 3 quarters).
Welshbeef said:
Also chaps this means HMRC gets zero corporation tax this year and could be the case for years to come. Given they would normally pay a lot of tax half a billion maybe more that a massive impact to our public finances. Which department gets this now additional deficit.
Given Tesco's whizzbang continental tax-avoidance schemes is the amount anywhere near that?trashbat said:
The writedown isn't the really interesting bit, the apparent 70% drop in profits is. A potentially great turnaround story but you'd have to be pretty confident before you bought in.
surely to appreciate what that meant you would need a detailed understanding of the detail between their top and bottom lines.Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff