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IFRS 16 in action

21 February 2019

Tesco says the change in accounting standards will result in a big increase in Tesco’s debt, but in reality it will have no “economic impact’” on the group.

It told a briefing of analysts and investors that the standard will also have no effect on how the business is run, or on cash flows.

It does, however, have a significant impact on the way the assets, liabilities and the income statement of the group are presented.

The headline impacts of IFRS 16 on Tesco’s statements can, it told the briefing, be summarised as:

*Group operating profit increases by £188m to £1,121m as rent is removed and only part-replaced by depreciation. Group operating margin increases by 59 basis points to 3.53%.

*Net assets are reduced by £1.4bn to £13bn, as a ‘new’ lease liability of £10.6bn and the ‘new’ right of use asset of £7.8bn are recognised.

*Total indebtedness increases by £3.3bn to £15.8bn due to lease extensions and contingent commitments being included and lease-specific discount rates being applied.

*Read the full story in the next issue of PQ magazine out on 15 March

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