2007 / 2008 Annual Report - Eastern Cape Development Corporation

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EASTERN CAPE DEVELOPMENT CORPORATION 2007/08CONSOLIDATED ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2008ACCOUNTING POLICIES1.6 Impairment of assetsAn impairment loss on an asset or cash-generating unit is the amount by which the carrying amount, i.e. the amountrecognised on the balance sheet after deducting any accumulated depreciation and accumulated impairment losses,exceeds its recoverable amount. The recoverable amount is the higher of an asset’s or cash-generating unit’s fair valueless costs to sell and its value in use. Value in use is the present value of future cash flows expected to be derived froman asset or cash-generating unit.At each reporting date the carrying amount of the tangible and intangible assets are assessed to determine whetherthere is any indication that those assets may have suffered an impairment loss. If any such indication exists, therecoverable amount of the cash-generating unit to which the asset belongs is estimated. Value in use is estimatedtaking into account future cash flows, forecast market conditions and the expected useful lives of the assets.If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, thecarrying amount is reduced to the higher of its recoverable amount and zero. Impairment losses are recognised in profitor loss. The loss is first allocated to reduce the carrying amount of goodwill and then to the other assets of the cashgeneratingunit. Subsequent to the recognition of an impairment loss, the depreciation or amortisation charge for theasset is adjusted to allocate its remaining carrying value, less any residual value, over its remaining useful life.If an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increasedto the revised estimate of its recoverable amount, limited to the carrying amount that would have been recognisedhad no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised in profit or loss.Impairments to goodwill are not reversed in subsequent accounting periods.1.7 Financial instrumentsFinancial assetsFinancial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes party tothe contractual provisions of the instrument.Financial assets are initially measured at fair value plus transaction costs. However, transaction costs in respect offinancial assets classified as at fair value through profit or loss are expensed.Investments classified as held to maturity are measured at amortized cost less any impairment losses recognised.Available for sale financial assets are measured at fair value with gains or losses being recognised directly in equity. Fairvalue, for this purpose, is market value if listed or a value arrived at by using appropriate valuation models if unlisted.Impairment losses are recognised in profit or loss when there is objective evidence that the asset is impaired. Anyreversal of impaiment losses is recognised directly in equity.Loans advanced are stated at the outstanding capital amount and accrued interest after deduction of amounts which,in the opinion of the directors, are required as specific impairment allowances. Specific impairment allowances aremade against identified doubtful advances. The aggregate impairment allowances, which are made during the year, lessamounts released and recoveries of advances previously written off are charged to the income statement. Irrecoverableadvances are written off as irrecoverable when the extent of the loss has been confirmed.Cash and cash equivalents are measured at fair value, with changes in fair value being recognised in profit or loss.Financial liabilitiesFinancial liabilities are initially measured at fair value plus transaction costs. However, transaction costs in respect offinancial liabilities classified as at fair value through profit or loss are expensed.Financial liabilities that are not designated on initial recognition as at fair value through profit or loss are measured atamortised cost. Financial liabilities that are designated on initial recognition as at fair value through profit or loss aremeasured at fair value, with changes in fair value being recognised in profit or loss.78
EASTERN CAPE DEVELOPMENT CORPORATION 2007/081.8 Share capital and equityOrdinary share capital, preference share capital or any financial instrument issued by the group is classified as equitywhen:• Payment of cash, in the form of a dividend or redemption, is at the discretion of the group;• The instrument does not provide for the exchange of financial instruments under conditions that are potentiallyunfavourable to the group;• Settlement in the group’s own equity instruments is for a fixed number of equity instruments at a fixed price; and• The instrument represents a residual interest in the assets of the group after deducting all of its liabilities.The group’s ordinary and preference share capital is classified as equity.Consideration paid or received for equity instruments is recognized directly in equity. Equity instruments are initiallymeasured at the proceeds received less incremental directly attributable issue costs. No gain is recognised in profit orloss on the purchase, sale, issue or cancellation of the group’s equity instruments.When the group issues a compound instrument, i.e. an instrument that contains both a liability and equity component,the equity component is initially measured at the residual amount after deducting from the fair value of the compoundinstrument the amount separately determined for the liability component. Transaction costs that relate to the issue of acompound financial instrument are allocated to the liability and equity components of the instrument in proportion tothe allocation of proceeds.Distributions to holders of equity instruments are recognised as dividends within equity in the period in which they arepayable. Dividends for the year that are declared after the balance sheet date are disclosed in the notes.1.9 Government grants and deferred incomeGovernment includes government agencies and similar bodies whether local, national or international. Governmentassistance is action by government designed to provide an economic benefit specific to an entity or range of entitiesqualifying under certain criteria. A government grant is assistance by government in the form of transfers of resources.When the conditions attaching to government grants have been met and the grants have been received, they arerecognised in profit or loss on a systematic basis over the periods necessary to match them with the related costs. Whenthey are for expenses or losses already incurred, they are recognised in profit or loss immediately. The unrecognisedportion of project spend at the balance sheet date is presented as deferred income. No value is recognised for othergovernment asistance.Government grants are recognised when there is reasonable assurance that:• the Group will comply with the conditions attaching to them; and• the grants will be received.Government grants are recorded as deferred income when they become receivable and are then recognised as incomeon a systematic basis over the periods necessary to match the grants with the related costs, which they are intended tocompensate.Government grants related to assets, including non-monetary grants at fair value, are presented in the balance sheet bysetting up the grant as deferred income.1.10 Project grantsThe grants received and associated expenditure are not included in the income statement of the Group but transferreddirectly to individual project fund accounts, which are reflected as a current liability. Interest received on the fundsis accounted for in the fund account unless the Group is entitled thereto according to the agreement. The funds areapplied to either specific expenditure as directed by the funder or in terms of the agreement with the funder.79
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2007 / 2008 Annual Report - Eastern Cape Development Corporation

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