annual report - Harvey Norman Company Reports & Announcements

STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(x) Impairment of non-financial assets (continued)
The consolidated entity bases its impairment calculation on detailed budgets and forecast calculations, which are
prepared separately for each of the consolidated entity‟s CGUs to which the individual assets are allocated. These budgets
and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated
and applied to project future cash flows after the fifth year.
Impairment losses of continuing operations, including impairment on inventories, are recognised in the income statement in
expense categories consistent with the function of the impaired assets, except for a property previously revalued and the
revaluation was taken to other comprehensive income. In this case, the impairment is also recognised in other
comprehensive income up to the amount of any previous revaluation.
For assets excluding goodwill, an assessment is made at each reporting date whether there is any indication that previously
recognised impairment losses may no longer exist or may have decreased. If such indication exists, the consolidated entity
estimates the asset‟s or CGUs recoverable amount. A previously recognised impairment loss is reversed only if there has
been a change in the assumptions used to determine the asset‟s recoverable amount since the last impairment loss was
recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor
exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been
recognised for the asset in prior years. Such reversal is recognised in the income statement unless the asset is carried at a
revalued amount, in which case, the reversal is treated as a revaluation increase.
(xi) Financial instruments – initial recognition and subsequent measurement
Financial Assets
Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as either
financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale
financial assets. The consolidated entity determines the classification of its financial assets at initial recognition.
All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets recorded
at fair value through profit or loss.
All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the consolidated
entity commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets under
contracts that require delivery of the assets within the period established generally by regulation or convention in the
market place.
The consolidated entity‟s financial assets include cash and short-term deposits, trade and other receivables, loans and
other receivables, quoted financial instruments and derivative financial instruments.
The subsequent measurement of financial assets depends on their classification as described below:
Financial assets at fair value through profit or loss
Financial assets classified as held for trading are included in the category „financial assets at fair value through profit or loss‟.
Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term with the
intention of making a profit. Derivatives are also classified as held for trading unless they are designated as effective
hedging instruments. Gains or losses on investments held for trading are recognised in profit or loss.
Held-to-maturity investments
Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity
when the consolidated entity has the positive intention and ability to hold to maturity. Investments intended to be held for
an undefined period are not included in this classification. Held-to-maturity investments are recorded at amortised cost
using the effective interest method less impairment with revenue recognised on an effective yield basis.
Loans and receivables
Loans and receivables including loan notes and loans to key management personnel are non-derivative financial assets
with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost
using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are
derecognised or impaired, as well as through the amortisation process. Interest income is recognised by applying the
effective interest rate.
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