Notes forming part of the financial statements (continued)
Note 1.
Summary of significant
accounting policies
continued
An item of property, plant and equipment
is derecognised upon disposal or when no
future economic benefits are expected to
arise from the continued use of the asset.
Any gain or loss arising on derecognition
of the asset (calculated as the difference
between the net disposal proceeds
and the carrying amount of the item)
is included in the income statement in
the year the item is derecognised.
Impairment
The recoverable amount of property, plant
and equipment is the higher of fair value
less costs to sell and value in use. In
assessing value in use, the estimated
future cash flows are discounted to their
present value using a pre-tax discount rate
that reflects current market assessments
of the time value of money and the risks
specific to the asset.
For an asset that does not generate largely
independent cash inflows, recoverable
amount is determined for the cash
generating unit to which the asset belongs,
unless the asset’s value in use can be
estimated to be close to its fair value.
An impairment exists when the carrying
value of asset or cash-generating unit
exceeds its estimated recoverable amount.
The asset or cash generating unit is then
written down to its recoverable amount.
(f) Depreciation
Depreciation is provided on property, plant
and equipment, including buildings (but
excluding freehold land), so as to write off
the asset progressively over its useful life
to the consolidated entity and is calculated
using the straight line method. The
expected useful lives are as follows:
Buildings 20 – 40 years
Plant and equipment 3 – 10 years
The assets residual values and useful lives
are reviewed, and adjusted if appropriate,
at each balance date.
(g) Leasehold improvements
The cost of improvements to or on
leasehold properties is amortised over
the lesser of the period of the lease or the
estimated useful life of the improvement.
(h) Income tax
Deferred income tax is provided on all
temporary differences at the balance sheet
date between the tax bases of assets and
liabilities and their carrying amounts for
financial reporting purposes.
Deferred income tax assets are recognised
for deductible temporary differences and
unused tax losses to the extent that it is
probable that taxable profit will be available
against which the deductible temporary
differences and unused tax losses can
be utilised.
Deferred income tax liabilities and assets
are recognised for all deductible and
taxable temporary differences:
•
except where the deferred income tax
asset or liability arises from the initial
recognition of an asset or liability in a
transaction that is not a business
combination and, at the time of the
transaction, affects neither the
accounting profit nor taxable profit
or loss;
•
in respect of taxable temporary
differences associated with
investments in subsidiaries, except
where the timing of the reversal of
the temporary differences can be
controlled and it is probable that the
temporary difference will not reverse
in the foreseeable future; and
•
in respect of indefinite lived
intangible assets.
Deferred income tax assets and liabilities
are measured at the rates that are
expected to apply to the year when the
asset is realised or the liability is settled,
based on tax rates (and tax laws) that have
been enacted or substantively enacted at
the balance sheet date.
Income taxes relating to items recognised
directly in equity are recognised in equity
and not in the income statement.
Tax Consolidation legislation
Wattyl Limited and its wholly-owned
Australian controlled entities implemented
the tax consolidation legislation as of
1 July 2003.
The head entity, Wattyl Limited, and the
controlled entities in the tax consolidated
group continue to account for their own
current and deferred tax amounts. These
tax amounts are measured as if each entity
in the tax consolidated group continues to
be a stand alone taxpayer in its own right.
In addition to the current and deferred tax
amounts, Wattyl Limited also recognises
the current tax liabilities (or assets) and the
deferred tax assets arising from unused
tax losses and unused tax credits
assumed from controlled entities in the
tax consolidated group.
Assets or liabilities arising under
tax funding agreements with the tax
consolidated entities are recognised as
amounts receivable from or payable to
other entities in the group.
Any differences between the amounts
assumed and amounts receivable or
payable under the tax funding agreement
are recognised as a contribution to (or
distribution from) wholly-owned tax
consolidated entities.
(i)
Non-current assets held for sale
Non-current assets identified as being
surplus to requirements are classified
as current assets. The carrying values
of these assets are the lower of their
book carrying amounts as reclassified
from non-current assets and their net
realisable values.
Non-current assets are not depreciated
or amortised while they are held for sale.
(j) Inventory valuation
Inventory and work in progress are valued
at the lower of cost and net realisable
value. Cost is determined on a first in first
out basis and includes direct materials,
direct labour and an appropriate proportion
of variable and fixed overheads.
Costs of purchased inventory are
determined after deducting rebates and
discounts. Net realisable value is the
estimated selling price in the ordinary
course of business less the estimated
costs of completion and the estimated
costs to make the sale.
(k) Foreign currency
(i)
Functional and presentation currency
Items included in the financial statements
of each of the Group’s entities are
measured using the currency of the
primary economic environment in which
the entity operates (the functional
currency). The consolidated financial
statements are presented in Australian
dollars, which is Wattyl Limited’s functional
and presentation currency.
(ii)
Transactions and balances
Foreign currency transactions are
translated into the functional currency
using the exchange rates prevailing at the
dates of the transactions. Foreign
exchange gains and losses resulting from
the settlement of such transactions and
from the translation at year end exchange
rates of monetary assets and liabilities
denominated in foreign currencies are
recognised in the income statement,
except when deferred in equity as
qualifying cash flow hedges and qualifying
net investment hedges.
Translation differences on non-monetary
items, such as equities held at fair value
through profit or loss, are reported as part
of the fair value gain or loss. Translation
differences on non-monetary items, such
as equities classified as available for sale
financial assets, are included in the fair
value reserve in equity.
(iii) Group Companies
The results and financial position of all
the Group entities (none of which has a
currency of a hyperinflationary economy)
that have a functional currency different
from the presentation currency are
translated into the presentation currency
as follows:
•
assets and liabilities for each balance
sheet presented are translated at the
closing rate at the date of that
balance sheet;
•
income and expenses for each income
statement are translated at average
exchange rate (unless this is not a
reasonable approximation of the
cumulative effect of the rates prevailing
on the transaction dates, in which
case income and expenses are
translated at the dates of the
transactions); and
•
all resulting exchange differences are
recognised as a separate component
of equity.
On consolidation, exchange differences
arising from the translation of any net
investment in foreign entities, and of
borrowings and other currency
instruments designated as hedges of such
investments, are taken to shareholders’
equity. When a foreign operation is sold
or borrowings repaid, a proportionate
share of such exchange differences are
recognised in the income statement as
part of the gain or loss on sale.
Goodwill and fair value adjustments arising
on the acquisition of a foreign entity are
treated as assets and liabilities of the foreign
entity and translated at the closing rate.
(l) Intangible assets
(i)
Goodwill
Goodwill on acquisition is initially measured
at cost being the excess (if any) of the
purchase consideration plus incidental
expenses over the fair net value of the
identifiable assets. Following initial
recognition, goodwill is measured at cost
less any accumulated impairment losses.
Goodwill is not amortised.
(ii)
Trade names
Trade names are considered to have
indefinite lives and are not amortised but
tested for impairment on an annual basis,
or where an indication of impairment
exists. Trade names are included in
the financial statements at cost less
accumulated amortisation and
impairment losses.
Impairment
Intangibles are reviewed for impairment,
annually or more frequently if events or
changes in circumstances indicate that the
carrying value may be impaired. Intangibles
are allocated to cash-generating units for
the purpose of impairment testing. Where
the recoverable amount of the cash
generating unit is less than the carrying
amount, an impairment loss is recognised.
(m) Investments
Controlled entities and associates are
accounted for in the consolidated financial
statements as set out in Note 1(c).
(n) Employee benefits
(i)
Wages and salaries, annual leave and
sick leave
Liabilities for wages and salaries, including
non-monetary benefits, annual leave and
accumulating sick leave expected to be
settled within twelve (12) months of the
reporting date are recognised in other
creditors or provision for employee
entitlements as applicable, in respect of
employees’ services up to the reporting
date and are measured at the amounts
expected to be paid when the liabilities fall
due. Benefits expected to be settled after
12 months from the reporting date are
measured at the present value of the
estimated future cash outflows to be
made in respect of services provided
by employees up to the reporting date.
Liabilities for non-accumulating sick
leave are recognised when the leave is
taken and measured at the rates paid
or payable.
(ii)
Long Service Leave
The liability for long service leave expected
to fall due within twelve (12) months of the
reporting date is recognised in the
provision for employee entitlements and
is measured in accordance with (i) above.
The liability for long service leave is
recognised in the provision for employee
entitlements and measured as the present
value of expected future payments to be
made in respect of services provided
by employees up to the reporting date.
Consideration is given to expected future
wage and salary levels, experience of
employee departures and periods of
service. Expected future payments are
discounted using market yields at the
reporting date on national government
bonds with terms to maturity and currency
that match, as closely as possible, the
estimated future cash outflows.
(iii) Bonus plans
A liability for employee benefits in the
form of bonus plans is recognised in
other creditors when there is no realistic
alternative but to settle the liability and
at least one of the following conditions
is met:
•
there are formal terms in the plan for
determining the amount of the benefit;
•
the amounts to be paid are
determined before the time of
completion of the financial report; or
•
past practice gives clear evidence of
the amount of the obligation.
Liabilities for bonus plans are expected to
be settled within twelve (12) months and
are measured at the amounts expected to
be paid when they are settled.
(iv) Retirement Benefit Obligations
The Group sponsors one defined benefit
fund, which is a funded plan. The fund
assets are held in a trustee administered
fund and is financed by payments from
employees and/or the relevant Group
companies, after taking into account the
recommendations of independent qualified
actuaries. Net surpluses or deficits, other
than actuarial gains or losses, which arise
within the defined benefit fund are
recognised in the Income Statement as
incurred. Actuarial gains or losses are
recognised directly in retained earnings.
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