Notes forming part of the financial statements (continued)
Note 1.
Summary of significant
accounting policies
continued
If the hedge no longer meets the criteria
for hedge accounting, the adjustment to
the carrying amount of a hedge item for
which the effective interest method is used
is amortised to profit or loss over the
period to maturity using a recalculated
effective interest rate.
(ii) Cash flow hedge
The effective portion of changes in the fair
value of derivatives that are designated
and qualify as cash flow hedges is
recognised in equity in the hedging
reserve. The gain or loss relating to
the ineffective portion is recognised
immediately in the income statement
within other income or other expense.
Amounts accumulated in equity are
recycled in the income statement in the
periods when the hedged item affects
profit or loss (for instance when the
forecast sale that is hedged takes place).
The gain or loss relating to the effective
portion of interest rate swaps hedging
variable rate borrowings is recognised in
the income statement within ‘finance
costs’. The gain or loss relating to the
effective portion of forward foreign
exchange contracts hedging export sales
is recognised in the income statement
within ‘sales’. However, when the forecast
transaction that is hedged results in the
recognition of a non-financial asset (for
example, inventory or fixed assets) the
gains and losses previously deferred in
equity are transferred from equity and
included in the initial measurement of the
cost of the asset. The deferred amounts
are ultimately recognised in profit or loss
as cost of goods sold in the case of
inventory, or as depreciation in the case
of fixed assets.
When a hedging instrument expires or
is sold or terminated, or when a hedge
no longer meets the criteria for hedge
accounting, any cumulative gain or loss
existing in equity at that time remains in
equity and is recognised when the forecast
transaction is ultimately recognised in the
income statement. When a forecast
transaction is no longer expected to occur,
the cumulative gain or loss that was
reported in equity is immediately
transferred to the income statement.
(iii) Derivatives that do not qualify for
hedge accounting
Certain derivative instruments do not
qualify for hedge accounting. Changes in
the fair value of any derivative instrument
that does not qualify for hedge accounting
are recognised immediately in the income
statement and are included in other
income or other expenses.
(z) Goods and Services Tax (GST)
Revenues, expenses and assets are
recognised net of the amount of
associated GST, unless the GST incurred
is not recoverable from the taxation
authority. In this case it is recognised as
part of the cost of acquisition of the asset
or as part of the expense.
Receivables and payables are stated
inclusive of the amount of GST receivable
or payable. The net amount of GST
recoverable from, or payable to, the taxation
authority is included with other receivables
or payables in the balance sheet.
Cash flows are presented on a gross
basis. The GST components of cash flows
arising from investing or financing activities
which are recoverable from, or payable to
the taxation authority, are presented as
operating cash flow.
(aa) Provisions
Provisions for legal claims and service
warranties are recognised when: the
Group has a present legal or constructive
obligation as a result of past events; it is
possible that an outflow of resources will
be required to settle the obligation; and
the amount has been reliably estimated.
Provisions are not recognised for future
operating losses.
Where there are a number of similar
obligations, the likelihood that an outflow
will be required in settlement is determined
by considering the class of obligations as a
whole. A provision is recognised even if the
likelihood of an outflow with respect to any
one item included in the same class of
obligations may be small.
Provisions are measured at the present
value of management’s best estimate of
the expenditure required to settle the
present obligation at the balance sheet
date. The discount rate used to determine
the present value reflects current market
value of money and the risks specific to
the liability. The increase in the provision
due to the passage of time is recognised
as interest expense.
(ab) Contributed equity
Ordinary shares are classified as equity.
Incremental costs directly attributable to
the issue of new shares or options are
shown in equity as a deduction, net of tax,
from the proceeds. Incremental costs
directly attributable to the issue of new
shares or options for the acquisition of a
business are not included in the cost of
the acquisition as part of the purchase
consideration.
If the entity reacquires its own equity
instruments, eg as the result of a share
buy back, those instruments are deducted
from equity and the associated shares are
cancelled. No gain or loss is recognised in
the profit or loss and the consideration
paid including any directly attributable
incremental costs (net of income taxes) is
recognised directly in equity.
(ac) Segment reporting
A business segment is a group of assets
and operations engaged in providing
products or services that are subject
to risks and returns that are different to
those of other business segments. A
geographical segment is engaged in
providing products or services within a
particular economic environment and is
subject to risks and returns that are
different from those of segments operating
in other economic environments.
(ad) Rounding of amounts
The amounts shown in the financial
statements have been rounded off, except
where otherwise stated, to the nearest
thousand dollars, in accordance with Class
Order 98/0100 issued by the Australian
Securities and Investments Commission,
the consolidated entity being in a class
specified in that class order.
(ae) New accounting standards
and interpretations
Certain new accounting standards and
interpretations have been published that
are not mandatory for 30 June 2007
reporting periods. The Group’s and the
parent entity’s assessment of the impact
of these new standards and interpretations
is set out below.
(i)
AASB 7 Financial Instruments:
Disclosures and AASB 2005-10
Amendments to Australian Accounting
Standards [AASB 132, AASB 101,
AASB 114, AASB 117, AASB 133,
AASB 139, AASB 1, AASB 4, AASB
1023 & AASB 1038]
AASB 7 and AASB 2005-10 are applicable
to annual reporting periods beginning on
or after 1 January 2007. AASB 7
introduces new disclosures to improve the
information about financial instruments. It
requires the disclosure of qualitative and
quantitative information about exposure
to risks arising from financial instruments,
including specified minimum disclosures
about credit risk, liquidity risk and market
risk, including sensitivity analysis to market
risk. It replaces AASB 130 Disclosures in
the Financial Statements of Banks and
Similar Financial Institutions and the
disclosure requirements in IAS 32 Financial
Instruments: Disclosure and Presentation.
It is applicable to all reporting entities.
The amendment to AASB 101 introduces
disclosures about the level of an entity's
capital and how it manages capital. The
Group assessed the impact of AASB 7
and the amendment to AASB 101 and
concluded that the main additional
disclosures will be the sensitivity analysis
to market risk and the capital disclosures
required by the amendment of AASB 101.
The Group will apply the standards from
annual reporting periods beginning
1 July 2007.
(ii)
AASB-I 10 Interim Financial Reporting
and Impairment
AASB-I 10 applies to annual reporting
periods beginning on or after
1 November 2006. It prohibits impairment
losses recognised in an interim period on
goodwill, investments in equity instruments
and investments in financial assets carried
at cost to be reversed at a subsequent
balance sheet date. The Group will apply
AASB-I 10 from 1 July 2007 but it is not
expected to have any impact on the
Group's financial statements.
(iii) Revised AASB 123 Borrowing Costs
and AASB 2007-6 Amendments to
Australian Accounting Standards
arising from AASB 123 [AASB 1,
AASB 101, AASB 107, AASB 111,
AASB 116 & AASB 138 and
Interpretations 1 & 12]
The revised AASB 123 is applicable to
annual reporting periods commencing on
or after 1 January 2009. It has removed
the option to expense all borrowing costs
and – when adopted – will require the
capitalisation of all borrowing costs directly
attributable to the acquisition, construction
or production of a qualifying asset. The
Group will apply the revised AASB 123
from 1 July 2007 but it is not expected
to have any impact on the Group's
financial statements.
(iv) AASB 2007-4 Amendments to
Australian Accounting Standards
arising from ED 151 and Other
Amendments and AASB 2007-7
Amendments to Australian Accounting
Standards [AASB 1, AASB 2, AASB 4,
AASB 5, AASB 107 & AASB 128]
AASB 2007-4 and AASB 2007-7 are
applicable to annual reporting periods
beginning on or after 1 July 2007. The
amendments introduce a number of
options that existed under IFRS but had
not been included in the original Australian
equivalents to IFRS and remove many of
the additional Australian disclosure
requirements, for example the detailed
disclosures in relation to the financial
position and funding of defined benefit
superannuation plans.
The financial statements may be
affected by:
•
the ability to use the indirect method
for presenting cash flow statements
•
discount rates for employee benefits
obligations to be based on corporate
bonds if there is a deep market in
Australia (previous guidance mandated
the use of government bond rates).
The Group will adopt the amendments
arising from AASB 2007-4 and AASB
2007-7 for the financial year beginning
1 July 2007. However, at this stage, it
does not intend to apply any of the new
options now available. As a consequence,
application of the revised standards will
not affect any of the amounts recognised
in the financial statements, but it may
remove some of the disclosures that
are currently required. In relation to the
discount rates used in the measurement
of employee benefit obligations, the Group
has not yet reached a conclusion as to
whether there is a deep market in
corporate bonds in Australia and hence
has not yet determined the financial effect,
if any, on the obligations from the
adoption of AASB 2007-4.
(v)
AASB 8 Operating Segments and
AASB 2007-3 Amendments to
Australian Accounting Standards
arising from AASB 8
AASB 8 and AASB 2007-3 are effective for
annual reporting periods commencing on
or after 1 January 2009. AASB 8 will result
in a significant change in the approach to
segment reporting, as it requires adoption
of a "management approach" to reporting
on the financial performance. The
information being reported will be based
on what the key decision-makers use
internally for evaluating segment
performance and deciding how to allocate
resources to operating segments. The
Group has not yet decided when to adopt
AASB 8. Application of AASB 8 may result
in different segments, segment results
and different type of information being
reported in the segment note of the
financial report. However, it will not affect
any of the amounts recognised in the
financial statements.
(vi) AASB-I 11 AASB 2 – Group and
Treasury Share Transactions and
AASB 2007-1 Amendments to
Australian Accounting Standards
arising from AASB Interpretation 11
AASB-I 11 and AASB 2007-1 are effective
for annual reporting periods commencing
on or after 1 March 2007. AASB-I 11
addresses whether certain types of share-
based payment transactions should be
accounted for as equity-settled or as cash
settled transactions and specifies the
accounting in a subsidiary’s financial
statements for share-based payment
arrangements involving equity instruments
of the parent. The Group will apply AASB-I
11 from 1 July 2007, but it is not expected
to have any impact on the Group's
financial statements.
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