bold spirit - ArcelorMittal South Africa

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ArcelorMittal South Africa
Annual Report 2010
3. SIGNIFICANT ACCOUNTING POLICIES continued
3.22 Provisions and contingent liabilities continued
Contingent liabilities
Legal claims are assessed using an accumulative probability method to determine whether a present obligation
exists and whether the obligations are measurable
A present obligation, classified as a provision, is recognised as probable and is measured at the estimated loss of
the outcome if it is more than 50% likely to occur.
For claims that are reasonably possible, being between 20% and 50% likely, the facts and circumstances of the
possible loss and an estimate of the amount, if determinable, are disclosed.
Remote claims, being less than 20% likely, are not disclosed or provided for, however, voluntary disclosure may
be made if the matter is significant in routine.
3.23 Revenue recognition
Sale of goods
Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the
ordinary course of the group’s and company’s activities. Revenue is shown net of Value-Added Tax, returns,
rebates, discounts and in the case of the group accounts, after eliminating sales within the group.
All amounts invoiced to a customer in a sale transaction related to distribution and handling costs are classified
as revenue, with the costs related thereto shown as distribution and handling costs within other operating
expenses.
The group and company recognise revenue when the amount of revenue can be reliably measured, when it is
probable that future economic benefits will flow to the entity and when specific criteria have been met for each
of the group’s and company’s activities as described below.
The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale
have been resolved. The group and company base such estimates on historical results, taking into consideration
the type of customer, the type of transaction and the specifics of each arrangement.
Sales of goods are recognised based on the relevant delivery terms at which point the risks of obsolescence and
loss have been transferred to the customer and either the customer has accepted the products in accordance
with the sales contract or the group and company have objective evidence that all criteria for acceptance have
been satisfied.
Interest income
Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable
is impaired, the group and company reduce the carrying amount to its recoverable amount, being the estimated
future cash flow discounted at the original effective interest rate of the instrument where material and continue
unwinding the discount as interest income.
Dividend income
Dividend income is recognised when the right to receive payment is established.
3.24 Operating leases
Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except
where another systematic basis is more representative of the time pattern in which economic benefits from the
leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in
the period in which they are incurred and are not straight-lined.
3.25 Borrowing costs
Qualifying borrowing costs calculated in accordance with the effective interest rate method and directly
attributable to the acquisition, construction or production of qualifying assets, for those assets that necessarily
take a substantial period of time to get ready for their intended use or sale, are added to the cost of those
assets, until such time as the assets are substantially ready for their intended use or sale.
All other borrowing costs are recognised in the statement of comprehensive income in the period incurred.