BROADENING OUR HORIZONS - Arrium

OneSteel Annual Report 2011701. Summary of significantaccounting policies (continued)Subsequent costs are included in theasset’s carrying amount or recognised as aseparate asset, as appropriate, only whenit is probable that future economic benefitsassociated with the item will flow to theGroup and the cost of the item can bemeasured reliably. The carrying amount ofthe replaced part is derecognised. All otherrepairs and maintenance are charged tothe Income Statement during the reportingperiod in which they are incurred.Depreciation of property, plantand equipment.Land is not depreciated. Depreciation onother assets is calculated on a straight-linebasis over the estimated useful life of thespecific assets as follows:Buildings:20—40 yearsPlant and equipment: 3—30 yearsCapitalised leased assets: Up to 30 yearsor life of lease,whichever isshorter.The assets’ residual values, useful livesand amortisation methods are reviewed,and adjusted if appropriate, at eachreporting date.DerecognitionAn item of property, plant and equipmentis derecognised upon disposal or whenno further future economic benefits areexpected from its use or disposal.Gains and losses on disposals aredetermined by comparing the proceedswith the carrying amount. These areincluded in the Income Statement.(p) Exploration and evaluation expenditureExpenditure on exploration and evaluationis accounted for in accordance with the“area of interest” method. Explorationand evaluation expenditure is capitalisedprovided the rights to tenure of the area ofinterest is current and either:• The exploration and evaluation activitiesare expected to be recouped throughsuccessful development and exploitationof the area of interest, or alternatively,by its sale, or• Exploration and evaluation activitiesin the area of interest have not, at thereporting date, reached a stage thatpermits a reasonable assessment of theexistence or otherwise of economicallyrecoverable reserves, and active andsignificant operations in, or relating to,the area of interest are continuing.When the technical feasibility andcommercial viability of extracting a mineralresource have been demonstrated, thenany capitalised exploration and evaluationexpenditure is reclassified as capitalisedmine development. Prior to reclassification,capitalised exploration and evaluationexpenditure is assessed for impairment.ImpairmentThe carrying value of capitalisedexploration and evaluation expenditureis assessed for impairment at the cashgenerating unit level whenever facts andcircumstances suggest that the carryingamount of the asset may exceed itsrecoverable amount.An impairment exists when the carryingamount of an asset or cash generating unitexceeds its estimated recoverable amount.The asset or cash generating unit is thenwritten down to its recoverable amount.Any impairment losses are recognised inthe Income Statement.(q) Mine development expenditure— pre-productionPre-production mine developmentexpenditure represents the costs incurredin preparing mines for production, andincludes stripping and waste removal costsincurred before production commences.These costs are capitalised to the extentthey are expected to be recoupedthrough successful exploitation of therelated mining leases. Once productioncommences, these costs are amortised ona straight-line basis over the estimateduseful life of the mine.ImpairmentThe carrying value of pre-production minedevelopment expenditure is assessed forimpairment at the cash generating unitlevel whenever facts and circumstancessuggest that the carrying amount of theasset may exceed its recoverable amount.The recoverable amount of pre-productionmine development expenditure is thehigher of fair value less costs to sell andvalue in use. In assessing value in use, theestimated future cash flows are discountedto their present value using a pre-taxdiscount rate that reflects current marketassessments of the time value of moneyand risks specific to the asset.An impairment exists when the carryingamount of an asset or cash generating unitexceeds its estimated recoverable amount.The asset or cash generating unit is thenwritten down to its recoverable amount.Any impairment losses are recognised inthe Income Statement.(r) Deferred stripping costsIn mining operations, it is necessary toremove overburden and other barrenwaste materials to access ore from whichminerals can be economically extracted.The process of mining overburden andwaste materials is referred to as stripping.Stripping costs incurred before productioncommences are included within capitalisedmine development expenditure andsubsequently amortised. The Group defersstripping costs incurred subsequentlyduring the production stage of operation.Stripping ratios are a function of thequantity of ore mined compared with thequantity of overburden or waste requiredto be removed to mine the ore. Deferralof these post-production costs to theBalance Sheet is made, where appropriate,when actual stripping ratios vary from theaverage life of mine ratio.Costs which have previously been deferredto the Balance Sheet are recognised in theIncome Statement on a unit of productionbasis utilising the average stripping ratios.Changes in estimates of average strippingratios are accounted for prospectively fromthe date of the change.As it is not possible to separatelyidentify cash inflows relating to deferredoverburden removal costs, such assetsare grouped with other assets of a cashgenerating unit for the purposes ofundertaking assessments, where necessary,based on future cash flows for the cashgenerating unit as a whole.(s) Goodwill and other intangible assetsGoodwillGoodwill represents the excess of the costof an acquisition over the fair value ofthe Group’s share of the net identifiablenet assets of the acquired subsidiary asat the date of acquisition. Goodwill onacquisitions of subsidiaries is included inintangible assets.Following initial recognition, goodwill ismeasured at cost less any accumulatedimpairment losses.For the purpose of impairment testing,goodwill acquired in a businesscombination is, from the acquisitiondate, allocated to each of the Group’scash generating units or groups of cashgenerating units that are expectedto benefit from the synergies of thecombination, irrespective of whetherother assets or liabilities of the Group areassigned to those units or groups of units.Impairment losses recognised for goodwillare not subsequently reversed.Gains and losses on the disposal of anoperation include the carrying amount ofgoodwill relating to the operation sold.System development costsCosts incurred in developing products orsystems and costs incurred in acquiringsoftware and licences that will contributeto future period financial benefits throughrevenue generation and/or cost reductionare capitalised as system developmentcosts. Costs capitalised include externaldirect costs of materials and service,direct payroll and payroll related costs ofemployees’ time spent on the project.System development costs includeonly those costs directly attributableto the development phase and areonly recognised following completionof technical feasibility and where theGroup has an intention and ability to usethe asset.