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MACQUARIE UNIT TRUST SERIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 2 Summary of significant accounting policies (continued) c) Financial assets at fair value through profit or loss (continued) The fair value of derivatives that are not exchange-traded is estimated at the amount that the Trust would receive or pay to terminate the contract at the statement of financial position date taking into account current market conditions (volatility and appropriate yield curve) and the current creditworthiness of the counterparties. d) Income and expense Dividend income is recognised in the statements of comprehensive income when the right to receive payment by each of the Sub-Funds is established. Interest income and expense is recognised in the statements of comprehensive income on a time-proportion basis using the effective interest method. Expenses are accounted for on an accruals basis and charged to the statements of comprehensive income as incurred. e) Payables Payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. f) Receivables Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost using the effective interest method, less provision for impairment. g) Cash and cash equivalents For the purpose of presentation in the statement of cash flows, cash includes cash on hand and deposits held at call with financial institutions. Cash equivalents include other short term, highly liquid investments with original maturities of three months or less from the date of acquisition that are readily convertible to known amounts of cash, which are subject to an insignificant risk of changes in value and are held for the purpose of meeting short term cash commitments rather than for investment or other purposes. Bank overdrafts and borrowings, if any, are shown separately on the statement of financial position. Payments and receipts relating to the purchase and sale of investment securities are classified as cash flows from operating activities, as movements in the fair value of these securities represent the Sub-Fund's main income generating activity. h) Amounts due from and due to brokers Amounts due from and due to brokers represent receivables for listed equity securities sold and payables for listed equity securities purchased that have been contracted for but not yet settled or delivered on the year end date, respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment for amounts due from brokers. A provision for impairment of amounts due from brokers is established when there is objective evidence that each of the Sub-Funds will not be able to collect all amounts due from the relevant broker. Significant financial difficulties of the broker, probability that the broker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amounts due from brokers are impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. 17
MACQUARIE UNIT TRUST SERIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 2 Summary of significant accounting policies (continued) h) Amounts due from and due to brokers (continued) The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, each of the Sub-Funds estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. i) Units Units of each of the Sub-Funds are redeemable at the option of the unitholders and are classified as financial liabilities. The units can be put back to the respective Sub-Fund for cash equal to a proportionate share of the respective Sub-Fund’s net asset value. The unit is carried at the redemption amount that is payable at the year end date if the unitholder exercises the right to put the units back to the respective Sub-Fund. Units are issued and redeemed at the unitholders’ option at prices based on the Sub-Fund’s net asset value per unit at the time of issue or redemption. The respective Sub-Fund’s net asset value per unit is calculated by dividing the net assets attributable to the unitholders with the total number of outstanding units. In accordance with the provisions of the Explanatory Memorandum of each of the Sub-Funds, investment positions are valued based on the last traded market price for the purpose of determining the net asset value per unit for subscriptions and redemptions. However, as stated in note 2(c), for the purpose of compliance with IFRS, investment positions are valued at bid/ask price. Consequently, the differences described above adjust the carrying amount of the net assets attributable to unitholders as set out in note 3. j) Proceeds and payments on subscriptions and redemption of units The net asset value of each of the Sub-Funds is computed daily. Prices for subscriptions and redemptions are based on the net asset value per unit calculated as at the close of business on the relevant valuation day in accordance with each of the Sub-Fund’s Explanatory Memorandum. Proceeds and payments for units subscribed and redeemed are shown as movements in the statements of changes in net assets attributable to unitholders. k) Transaction costs Transaction costs are costs incurred to acquire financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, advisors, brokers and dealers. Transaction costs, when incurred, are immediately recognised in the statements of comprehensive income. l) Taxation Under current laws of the Cayman Islands, there is no income, estate, transfer, sales or other Cayman Island taxes payable by the Fund. Generally, the Fund intends to conduct its affairs so as not to be liable to taxation in any other jurisdiction, however, the Fund may invest in securities whose income is subject to nonrefundable foreign withholding. 18
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