BROADENING OUR HORIZONS - Arrium

OneSteel Annual Report 2011681. Summary of significantaccounting policies (continued)(d) Foreign currency translationFunctional and presentation currencyItems included in the financial statementsof each of the Group’s entities aremeasured using the currency of theprimary economic environment in whichthe entity operates (“the functionalcurrency”). The consolidated financialstatements are presented in Australiandollars, which is the functional andpresentation currency of OneSteel Limited.Transactions and balancesTransactions in foreign currencies aretranslated into the functional currencyusing exchange rates that approximatethose prevailing at the dates of thetransactions. Foreign exchange gains andlosses resulting from the settlement ofsuch transactions and from the translationat reporting period end exchangerates of monetary assets and liabilitiesdenominated in foreign currencies, arerecognised in the Income Statement, exceptwhen deferred in Equity as qualifying cashflow hedges and qualifying net investmenthedges or are attributable to part of thenet investment in a foreign operation.Translation differences on financialassets and liabilities carried at fair valueare reported as part of the fair valuegain or loss.Group companiesThe results and financial position of allGroup entities (none of which has thecurrency of a hyperinflationary economy)that have a functional currency differentfrom the presentation currency aretranslated into the presentation currencyas follows:• Assets and liabilities for each balancesheet presented are translated atthe closing rate at the date of thatbalance sheet• Income and expenses for each incomestatement are translated at averageexchange rates• All resulting exchange differences arerecognised as a separate componentof equity.On consolidation, exchange differencesarising from the translation of any netinvestment in foreign entities, and ofborrowings and other financial instrumentsdesignated as hedges of such investments,are taken to equity. When a foreignoperation is sold and any borrowingsforming part of the net investment arerepaid, a proportionate share of suchexchange differences are recognised in theIncome Statement, as part of the gain orloss on sale where applicable.Goodwill and fair value adjustmentsarising on the acquisition of a foreignentity are treated as assets and liabilitiesof the foreign entity and translated at theclosing rate.(e) Revenue recognitionRevenue is recognised and measuredat the fair value of the considerationreceived or receivable, to the extent it isprobable that the economic benefits willflow to the Group and the revenue can bereliably measured.Amounts disclosed as revenue earnedfrom the sale of products or services arenet of returns, trade allowances, rebatesand amounts collected on behalf ofthird parties.Revenue is recognised when the significantrisks and rewards of ownership of thegoods have passed to the buyer or theservice has been delivered and the costsincurred or to be incurred in respect of thetransaction can be measured reliably.Dividend income is recognised when theright to receive payment is established.Interest income is recognised on a timeproportion basis using the effectiveinterest method.(f) Income taxesThe income tax expense or benefit forthe period is the tax payable on thecurrent period’s taxable income basedon the national income tax rate for eachjurisdiction adjusted by changes in deferredtax assets and liabilities attributable totemporary differences and to unusedtax losses.The current income tax charge is calculatedon the basis of the tax laws enacted orsubstantively enacted at the end of thereporting period in the countries wherethe Company’s subsidiaries and associatesoperate and generate taxable income.Management periodically evaluatespositions taken in tax returns with respectto situations in which applicable taxregulation is subject to interpretation. Itestablishes provisions where appropriateon the basis of amounts expected to bepaid to the tax authorities.Deferred tax assets and liabilities arerecognised for temporary differences atthe balance sheet date between the taxbases of assets and liabilities and theircarrying amounts in the consolidatedfinancial statements.Deferred income tax is determinedusing tax rates which are enacted orsubstantively enacted for each jurisdictionat balance date and are expected toapply when the related deferred tax assetis realised or the deferred income taxliability is settled. An exception is madefor certain temporary differences arisingfrom the initial recognition of an asset orliability. No deferred tax asset or liability isrecognised in relation to these temporarydifferences in a transaction, other than abusiness combination, that at the time ofthe transaction affects neither accountingprofit or taxable profit and loss.Deferred tax assets are recognised fordeductible temporary differences andunused tax losses only if it is probable thatfuture taxable amounts will be available toutilise those temporary differences.Deferred tax liabilities and assets are notrecognised for temporary differencesbetween the carrying amount and taxbases of investments in controlledentities where the parent entity is able tocontrol the timing of the reversal of thetemporary differences and it is probablethat the differences will not reverse in theforeseeable future.Current and deferred tax balancesattributable to amounts recognised directlyin Equity, are also recognised directlyin Equity.Tax consolidation legislationOneSteel Limited and its wholly-ownedAustralian controlled entities haveimplemented the tax consolidationlegislation.The head entity, OneSteel Limited, and thecontrolled entities in the tax consolidatedgroup account for their own current anddeferred tax amounts. The Group hasapplied the group allocation approach indetermining the appropriate amount ofcurrent taxes to allocate to members of thetax consolidated group.Assets or liabilities arising undertax sharing agreements with the taxconsolidated entities are recognised asamounts receivable from or payable tothe head entity. Details of the tax sharingagreement are disclosed in Note 5.Any difference between the amountsassumed and amounts receivable orpayable under the tax sharing agreementsare recognised as a contribution to (ordistribution from) wholly-owned taxconsolidated entities.(g) Goods and services tax (GST)Revenues, expenses and assets arerecognised net of the amount of GST,except where the amount of GST incurredis not recoverable from the taxationauthority. In these circumstances, it isrecognised as part of the cost of acquisitionof the asset, or as part of the expense.Receivables and payables in the BalanceSheet are shown inclusive of GST. Thenet amount of GST recoverable from,or payable to the taxation authority isincluded with other receivables or payablesin the Balance Sheet.The GST components of cash flows whichare recoverable from, or payable to thetaxation authority are classified as part ofoperating cash flows.(h) Cash and cash equivalentsCash and cash equivalents in the BalanceSheet comprise cash at bank and in handand short-term deposits with an originalmaturity of three months or less, thatare readily convertible to known amountsof cash and which are subject to aninsignificant risk of changes in value.