2010 Annual Report - Grange Resources

DECEMBER 2010 ANNUAL REPORT 45
(e) Business combinations (cont.)
Deferred consideration is measured at the present value of
management’s best estimate of expenditure required to settle the
present obligation at the reporting date. The discount rate used
to determine the present value reflects the current assessment
of the Group’s incremental borrowing rate. The increase in the
provision due to the passage of time or ‘unwinding’ of the
discount is recognised as a finance expense. Other movements
in deferred consideration, including those from updated short
and long-term commodity prices and forward exchange rates are
recognised in the income statement to the extent that they do
not exceed the discount on acquisition initially recognised.
(f) Revenue recognition
Revenue is recognised and measured at the fair value of the
consideration received or receivable. The Group recognises
revenue when the amount of revenue can be reliably measured, it
is probable that the economic benefits will flow to the Group and
specific criteria have been met for each of the Group’s activities
described below.
Revenue is recognised for the major business transactions as
follows:
Sales of iron ore
Revenues from the sales of iron ore are recognised when the
significant risks and rewards of ownership of the goods have
passed to the customer and the amount of revenue can be
measured reliably. Risks and rewards are considered passed to
the buyer at the time when title passes to the customer.
The majority of the Group’s sales arrangements specify that title
passes when the product is transferred to the vessel on which
the product will be shipped. Revenues are generally recognised
on the bill of lading date. Sales arrangements allow for an
adjustment to the sales price based on a survey of the goods by
the customer (an assay for mineral content). Accordingly, sales
revenue is initially recognised on a provisional basis using the
most recently determined estimate of the product specifications
and subsequently adjusted, if necessary, based on a survey of
the goods by the customer.
The Group has agreed with customers to price its iron ore pellets
at index based market prices. Interim pricing arrangements have
been agreed with customers and will remain in place until such
time as an index based market pricing mechanism is agreed.
Accordingly, sales revenues have been initially recognised using
interim prices and will be subsequently adjusted, if necessary,
when an index based market price is agreed with customers.
Royalties
Royalty revenue is recognised on an accrual basis in accordance
with the substance of the arrangements.
Interest revenue
Interest revenue is recognised on a time proportion basis using
the effective interest method.
Dividend revenue
Dividends are recognised as revenue when the right to receive
payment is established.
(g) Government Grants
Government grants are recognised when there is reasonable
assurance that the grant will be received and all attaching
conditions will be complied with.
When the grant relates to an expense item, it is recognised as
income over the periods necessary to match the grant on a
systematic basis to the costs that it is intended to compensate.
When the grant relates to an asset, the fair value is credited
to a deferred income account and is released to the income
statement over the expected useful life of the relevant asset by
equal annual instalments.
(h) Leases
Leases are classified as either operating or finance leases at the
inception of the leases based on the economic substance of their
agreement so as to reflect the risks and rewards incidental to
ownership.
Finance leases, which are those leases that transfer substantially
all of the risks and rewards incidental to ownership of the leased
item to the Group, are capitalised at the present value of the
minimum lease payments and disclosed as property, plant and
equipment. A lease liability of equal value is also recognised.
Each lease payment is allocated between the liability and
financing costs. The finance cost is charged to the income
statement over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the liability
over the period. The property, plant and equipment acquired
under a finance lease is depreciated over the asset’s useful life or
over the shorter of the asset’s useful life and the lease term if
there is no reasonable certainty that the Group will obtain
ownership at the end of the lease term.
Operating leases are those leases that do not transfer a
significant portion of the risks and rewards of ownership to the
Group as lessee. Payments made under operating leases are
charged to the income statement on a straight-line basis over
the period of the lease.
DirectorS’ Report
Financial Statements
Shareholder information