2012 Annual Report (2 April 2013) - Grange Resources

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2012 ANNUAL REPORT
Notes to the Financial Statements (cont.)
NOTE 3. CRITICAL ACCOUNTING
ESTIMATES AND JUDGEMENTS (cont.)
Taxation
The Group’s accounting policy for taxation requires management
judgment in relation to the application of income tax legislation.
There are many transactions and calculations undertaken
during the ordinary course of business where the ultimate tax
determination is uncertain. The Group recognises liabilities for tax,
and if appropriate taxation investigation or audit issues, based on
whether tax will be due and payable. Where the taxation outcome
of such matters is different from the amount initially recorded,
such difference will impact the current and deferred tax positions
in the period in which the assessment is made.
The Group merged its multiple tax consolidated group’s on
6 January 2011 which has impacted the carrying amount of
deferred tax assets and deferred tax liabilities recognised on
the balance sheet. Management have used judgement in the
application of income tax legislation on accounting for this tax
consolidation. These judgements are based on management’s
interpretation of the income tax legislation applicable at the time
of the consolidation.
In addition, certain deferred tax assets for deductible temporary
differences, including MRRT allowances, and carried forward
taxation loses have been recognised. In recognising these
deferred tax assets assumptions have been made regarding the
Group’s ability to generate future taxable profits. Utilisation of the
tax losses also depends on the ability of the tax consolidated
entities to satisfy certain tests at the time the losses are recouped.
If the entities fail to satisfy the tests, the carried forward losses
that are currently recognised as deferred tax assets would have
to be written off to income tax expense. There is an inherent risk
and uncertainty in applying these judgments and a possibility that
changes in legislation will impact upon the carrying amount of
deferred tax assets and deferred tax liabilities recognised on the
balance sheet.
Mineral Resources Rent Tax (MRRT)
The enactment and subsequent commencement of the MRRT
requires management judgement in relation to the application of
the Mineral Resources Rent Tax Act 2012.
In assessing the impact of the MRRT on future results, the
Group makes a number of assumptions and estimates, including
commodity price, foreign exchange rates, reserves and resources
for a mining project interest and an expectation regarding future
operating performance which is subject to risk and uncertainty.
In addition, the Group has also determined a market value of
its mining assets as at 1 May 2010. Changes in circumstances
and market conditions may affect any of these assumptions and
estimates and the impact of the MRRT on the group’s future
results. These changes coupled with the impact of the MRRT on
the Group’s future results will be recognised in the period in which
the assessment is made.
Deferred consideration obligation
The Group has recognised a deferred consideration obligation in
relation to a series of payments owing to the previous owners of
Grange Resources (Tasmania) Pty Ltd as a result of a business
combination in August 2007.
In determining the appropriate level of obligation consideration
is given to the expected gross revenues of Grange Resources
(Tasmania) Pty Ltd and the timing of these expected gross
revenues. Estimates of gross revenue include a number of
assumptions including commodity prices and foreign exchange
rates. Changes to any of the estimates could result in a significant
change to the level of the obligation required, which in turn will
impact future financial results.
Provision for decommissioning and restoration costs
Decommissioning and restoration costs are a normal
consequence of mining, and the majority of this expenditure is
incurred at the end of a mine’s life. In determining an appropriate
level of provision, consideration is given to the expected future
costs to be incurred, the timing of these expected future costs
(largely dependent on the life of the mine), and the estimated
future level of inflation.
The ultimate cost of decommissioning and restoration is uncertain
and costs can vary in response to many factors including
changes to the relevant legal requirements, the emergence of new
restoration techniques or experience at other mine sites. The
expected timing of expenditure can also change, for example in
response to changes in reserves or to production rates.
Changes to any of the estimates could result in significant
changes to the level of provisioning required, which would in
turn impact future financial results. These estimates are reviewed
annually and adjusted where necessary to ensure that the most
up to date data is used.
Share-based payment transactions
The Group measures the cost of equity-settled transactions with
employees by reference to the fair value of the equity instruments
at the date at which they are granted. The fair value for options is
determined by an external value using a binomial model, using the
assumptions detailed in Note 40. The fair value for shares issued
is determined by the volume weighted average trading price over
a specified number of days.