BROADENING OUR HORIZONS - Arrium

Notes to the Financial StatementsFor the purposes of the Cash FlowStatement, cash and cash equivalentsconsist of cash and cash equivalents asdefined above, net of outstanding bankoverdrafts. Bank overdrafts are includedwithin current interest-bearing liabilities onthe Balance Sheet.(i) Trade and other receivablesTrade receivables are recognised initiallyat fair value and subsequently measuredat amortised cost using the effectiveinterest method, less an allowance for anyuncollectible amounts.Collectibility of trade receivables isreviewed on an ongoing basis. Debtsthat are known to be uncollectible arewritten off when identified. An allowancefor doubtful debts is raised when thereis objective evidence that the Group willnot be able to collect the debt. Significantfinancial difficulties of the debtor,probability that the debtor will enterbankruptcy or financial reorganisation,and default or delinquency in paymentsare considered indicators that the tradereceivable is impaired.The amount of doubtful debt provided foris recognised in the Income Statementwithin operating expenses. When a tradereceivable for which an allowance hasbeen recognised becomes uncollectiblein a subsequent period, it is written offagainst the allowance account. Subsequentrecoveries of amounts previously writtenoff are credited against operating expensesin the Income Statement.(j) InventoriesInventories, including raw materials, workin progress and finished goods, are valuedat the lower of cost and net realisablevalue. Cost comprises direct materials,direct labour and an appropriate proportionof variable and fixed overhead expenditure,the latter being allocated on the basis ofnormal operating capacity. They include thetransfer from Equity of any gains or losseson qualifying cash flow hedges relatingto purchases of raw material. Costs areassigned to individual items of inventory onthe basis of weighted average cost. Costsof purchased inventory are determinedafter deducting rebates and discounts. Netrealisable value is the estimated sellingprice in the ordinary course of businessless the estimated costs of completion andthe estimated costs necessary to makethe sale.(k) Investments and other financial assetsThe Group classifies its financial assets inthe following categories: financial assetsat fair value through profit and loss; loansand receivables; and available for salefinancial assets. The classification dependson the purpose for which the investmentswere acquired. Management determinesthe classification of its investments atinitial recognition and re-evaluates thisdesignation at each reporting date. TheGroup does not have any held to maturityinvestmentsFinancial assets at fair value throughprofit or lossFinancial assets at fair value through profitor loss are financial assets held for trading,and are classified as such if they areacquired for the purpose of selling in thenear term. Derivatives are also classified asheld for trading unless they are designatedas effective hedging instruments. Gainsor losses on investments held for tradingare recognised in the Income Statement.Assets in this category are classified ascurrent assets.Loans and receivablesLoans and receivables are non-derivativefinancial assets with fixed or determinablepayments that are not quoted in anactive market. Such assets are carriedat amortised cost using the effectiveinterest method. Gains and losses arerecognised in the Income Statement whenthe loans and receivables are derecognisedor impaired, as well as through theamortisation process.Available for sale investmentsAvailable for sale investments are thosenon-derivative financial assets that aredesignated as available for sale or arenot classified in any of the two precedingcategories. After initial recognition,available for sale investments aremeasured at fair value with gains orlosses being recognised as a separatecomponent of equity until the investmentis derecognised or until the investment isdetermined to be impaired, at which timethe cumulative gain or loss previouslyreported in Equity is recognised in theIncome Statement.(l) Investments accounted for using theequity methodInvestments in jointly controlled entitiesand associates are accounted for in theconsolidated financial statements byapplying the equity method of accounting,after initially being recognised at cost.Under the equity method, investments injointly controlled entities and associatesare carried in the consolidated balancesheet at cost plus post-acquisition changesin the Group’s share of net assets of thejointly controlled entity. After application ofthe equity method, the Group determineswhether it is necessary to recognise anyimpairment loss with respect to the Group’snet investment in jointly controlled entitiesor associates.The Group’s share of the jointly controlledentity’s and associate’s post-acquisitionprofits or losses is recognised in the IncomeStatement and its share of post acquisitionmovements in reserves is recognised inreserves. The cumulative post acquisitionmovements are adjusted against thecarrying amount of the investment.Should the Group’s share of losses in ajointly controlled entity or associate equalor exceed its interest in the entity, nofurther losses are recognised, unless it hasincurred obligations or made payments onbehalf of the entity.The jointly controlled entity and associate’saccounting policies conform to those usedby the Group for like transactions andevents in similar circumstances.(m) Impairment of assetsGoodwill and intangible assets that havean indefinite useful life are not subject toamortisation and are tested annually forimpairment, or more frequently if eventsor changes in circumstances indicate thatthey might be impaired. Other assetsare tested for impairment wheneverevents or circumstances indicate that thecarrying amount may not be recoverable.An impairment loss is recognised for theamount by which the asset’s carryingamount exceeds its recoverable amount.The recoverable amount is the higher ofan asset’s fair value less costs to sell andvalue in use. For the purposes of assessingimpairment, assets are grouped at thelowest levels for which there are separatelyidentifiable cash inflows which are largelyindependent of the cash inflows from otherassets or groups of assets (cash generatingunits). Non-financial assets other thangoodwill that have suffered an impairmentare reviewed for possible reversal of theimpairment at each reporting date.(n) Leased assetsLeases of property, plant and equipmentwhere the Group, as lessee, hassubstantially all of the risks and benefitsincidental to ownership of the leased itemare classified as finance leases. These areinitially recognised at the fair value ofthe leased asset, or if lower, the presentvalue of the minimum lease payments asdetermined at the inception of the lease.The corresponding lease obligation, netof finance charges is included in interestbearingliabilities. Lease payments areapportioned between the finance chargesand reduction of the lease liability so as toachieve a constant rate of interest on theremaining balance of the liability. Financecharges are recognised as an expense inthe Income Statement.The property, plant and equipmentacquired under finance leases aredepreciated over the shorter of theestimated useful life of the assets and thelease term.Operating lease payments are recognisedas an expense in the Income Statement ona straight-line basis over the lease term.Lease incentives are recognised in theIncome Statement as an integral part of thetotal lease expense.(o) Property, plant and equipmentProperty, plant and equipment assetsare carried at cost less any accumulateddepreciation and/or impairment losses.Cost includes expenditure that is directlyattributable to the acquisition of the items.Cost may also include transfers from equityof any gains or losses on qualifying cashflow hedges of foreign currency purchasesof property, plant and equipment.69