Tesco Shares / False Accounting.

Glen_Clark

Thrugelmir wrote: »

Suppliers pay for shelf positioning, it's called a slotting fee. My assumption is that Tesco's may have been booking this commercial revenue early. Thereby boosting declared profits.

As I understand it, suppliers offer a discount when a target is reached eg sell one billion cans of coke and we drop the cost price of them all by 10%. (I'm guessing these figures, but you get my drift) This is the incentive to give them best shelf position, and promote them over other brands, maybe even with BOGOF when they are within reach of the target. Tesco has apparently assumed they will meet these sales targets, as they may have done previously when times were better, and booked the 5% discount already. So unfortunately, its not just a case of booking the discount in an earlier quarter, as the discount may not materialise at all.
Apparently this optimistic form of accounting is not illegal yet. But it will be after 2017, when they will not be allowed to book these discounts unless and until they are guaranteed.
But the new boss wants to get all the bad news out now, to make his performance look better. Hence he asked everyone to 'come forward with their concerns', encouraging 'whistleblowers', and he has made a big do out of this by making alarming statements to the press, suspending directors, calling in auditors etc.

Thrugelmir

Glen_Clark wrote: »

As I understand it, suppliers offer a discount when a target is reached eg sell one billion cans of coke and we drop the cost price of them all by 10%. (I'm guessing these figures, but you get my drift)

I understand where you are coming from. Volume sales rebates are extremely common however are paid retrospectively. So would be accrued on an actual basis i.e. sales. Far easier to book a lump sum upfront payment from a supplier as revenue immediately. Than spread the income over the duration of the contract term.