2012 Annual Report (2 April 2013) - Grange Resources

2012 ANNUAL REPORT
49
PAGE
Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their
fair values at the acquisition date, irrespective of the extent of
any minority interest. The excess of the cost of acquisition over
the fair value of the Group’s share of the identifiable net assets
acquired is recorded as goodwill. If the cost of acquisition is less
than the fair value of the net assets of the subsidiary acquired, the
difference is recognised directly in the income statement, but only
after a reassessment of the identification and measurement of the
net assets acquired.
Where settlement of any part of consideration is deferred, the
amounts payable in the future are discounted to their present
value as at the date of exchange. The discount rate used is the
Group’s incremental borrowing rate, being a proxy for the rate at
which a similar borrowing could be obtained from an independent
financier under comparable terms and conditions.
Deferred consideration is measured at the present value of
management’s best estimate of expenditure required to settle
the 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.
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.