2012 Annual Report (2 April 2013) - Grange Resources

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2012 ANNUAL REPORT
Notes to the Financial Statements (cont.)
NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (cont.)
(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.
(i) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held
at call with financial institutions, other short-term, highly liquid
investments with original maturities of three months or less that
are readily convertible to amounts of cash and which are subject
to an insignificant risk of changes in value, net of outstanding
bank overdrafts. Bank overdrafts are shown within borrowings in
current liabilities on the balance sheet.
(j) Trade and other receivables
Trade receivables are recognised and carried at the original
invoice amount less provision for impairment. Trade receivables
are generally due for settlement within 14 days.
Collectability of trade receivables are reviewed on an ongoing
basis. Debts which are known to be uncollectable are written
off by reducing the amount directly. An allowance accounts
(provision for impairment of trade receivables) is used when there
is objective evidence that the Group will not be able to collect all
amounts due according to the original terms of the receivables.
The amount of the impairment loss is recognised in the income
statement within other expenses. When a trade receivable for
which an impairment allowance had been recognised become
uncollectable in a subsequent period, it is written off against the
allowance account. Subsequent recoveries of amounts previously
written off are credited against other expenses in the income
statement.
Term deposits held with financial institutions with maturities of
more than three months are presented as receivables. Term
deposits with a maturity date of more than 12 months after the
reporting date are classified as non-current.
(k) Inventories
Raw materials and stores, ore stockpiles, work in progress and
finished goods are stated at the lower of cost and net realisable
value. Cost is determined primarily on the basis of weighted
average costs and comprises of cost of direct materials and the
costs of production which include:
◆ ◆ labour costs, materials and contractor expenses which are
directly attributable to the extraction and processing of ore;
◆ ◆ depreciation of property, plant and equipment used in the
extraction and processing of ore; and
◆ ◆ production overheads directly attributable to the extraction
and processing of ore.
Stockpiles represent ore that has been extracted and is available
for further processing. If there is significant uncertainty as to
when the stockpiled ore will be processed it is expensed as
incurred. Where the future processing of the ore can be predicted
with confidence because it exceeds the mine’s cut-off grade, it
is valued at the lower of cost and net realisable value. Work in
progress inventory includes partly processed material. Quantities
are assessed primarily through surveys and assays.
Net realisable value is the estimated selling price in the ordinary
course of business less the estimated costs of completion and
the estimated costs necessary to make the sale.
(l) Income tax
The income tax expense or benefit for the period is the tax
payable on the current period’s taxable income based on the
applicable income tax rate for each jurisdiction adjusted by
changes in deferred tax assets and liabilities attributable to
temporary differences and to unused tax losses.