annual report - Harvey Norman Company Reports & Announcements

STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(xv) Employee benefits
Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave
when it is probable that settlement will be required and they are capable of being measured reliably.
Provisions made in respect of employee benefits expected to be settled within 12 months, are measured at their nominal
values using the remuneration rate expected to apply at the time of settlement. Provisions made in respect of employee
benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future
cash outflows to be made by the consolidated entity in respect of services provided by employees up to 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 currencies that match, as closely as possible, the estimated future cash outflows.
Defined contribution plans
Contributions to defined contribution superannuation plans are expensed when incurred.
(xvi) Share-based payment transactions
The consolidated entity provides benefits to certain employees (including executive directors) of the consolidated entity in
the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over
shares (“equity-settled transactions”).
The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which
they are granted. The fair value is determined by an external valuer either using a binomial valuation methodology or Black
Scholes-Merton valuation methodology. The cost of equity-settled transactions is recognised, together with a
corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on
which the relevant employees become fully entitled to the award (“vesting date”).
The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the
extent to which the vesting period has expired and (ii) the number of awards that, in the present opinion of the directors of
the consolidated entity, will ultimately vest. This opinion is formed based on the best available information at balance date.
No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is
included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest,
except for awards where vesting is conditional upon a market condition.
The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per
share.
If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet
recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and
designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they
were a modification of the original award.
(xvii) Leases
Consolidated entity as lessor
Amounts due from lessees under finance leases are recorded as receivables. Finance lease receivables are initially
recognised at amounts equal to the present value of the minimum lease payments receivable plus the present value of any
unguaranteed residual value expected to accrue at the end of the lease term. Finance lease payments are allocated
between interest revenue and reduction of the lease receivable over the term of the lease in order to reflect a constant
periodic rate of return on the net investment outstanding in respect of the lease.
Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease.
Consolidated entity as lessee
Finance leases, which transfer to the consolidated entity substantially all the risks and benefits incidental to ownership of the
leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present
value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of
the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.
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