BROADENING OUR HORIZONS - Arrium

OneSteel Annual Report 2011721. Summary of significantaccounting policies (continued)Contributions to the Group’s definedcontribution funds are recognised as anexpense as they become payable. Prepaidcontributions are recognised as an asset tothe extent that a cash refund or reductionin the future payments is available.Equity-based compensation arrangementsThe OneSteel Group provides benefitsto employees in the form of sharebasedpayment transactions, wherebyemployees render services in exchange forOneSteel Limited ordinary shares (equitysettledtransactions). These shares areheld in trust and are subject to certainperformance conditions.The cost of these equity-settledtransactions with employees is measuredby reference to the fair value of the equityinstruments or rights granted at the date ofthe grant. The fair value is determined byan external valuation using a Monte CarloSimulation option pricing model. In valuingequity-settled transactions, no account istaken of any performance conditions, otherthan those conditions that are linked to theprice of the ordinary shares of OneSteelLimited (market conditions).The cost of the equity-settled transactionsis recognised together with a correspondingincrease in Equity, over the period in whichthe performance conditions are fulfilled,ending on the date on which the relevantemployees become fully entitled to theaward (the vesting date).The cumulative expense recognisedfor equity-settled transactions at eachreporting date until vesting date reflects:• The extent to which the vesting periodhas expired, and• The number of equity instruments thatare estimated to ultimately vest, basedon the best available information at thereporting date.This valuation is formed based on the bestavailable information at balance date.No adjustment is made for the likelihoodof market conditions being met, as theeffect of these conditions is included in thedetermination of fair value at grant date.No expense is recognised for awards thatdo not ultimately vest, except for awardswhere vesting is solely based upon amarket condition.The dilutive effect, if any, of outstandingoptions or unvested shares, is reflected asadditional share dilution in the computationof earnings per share.OneSteel Limited ordinary shares acquiredon-market and held in trust are classifiedand disclosed as Employee CompensationShares and deducted from Equity.(w) Restoration and rehabilitationRestoration costs which are expected tobe incurred are provided for as part ofthe cost of the exploration, evaluation,development, construction or productionphases that give rise to the need forrestoration. The costs include obligationsrelating to reclamation, waste site closure,plant closure and other costs associatedwith the restoration of the site. Theseestimates of the restoration obligationsare based on anticipated technology andlegal requirements and future costs. Indetermining the restoration obligations,there is an assumption that no significantchanges will occur in the relevant Federaland State legislation in relation torestoration in the future.The estimated restoration costs for whichthe entity has a present obligation arediscounted to their net present value. Tothe extent that the activity that creates thisobligation relates to the construction of anasset, a corresponding amount is added tothe related asset. Otherwise, the amount isincurred as a current period expense.Changes in the measurement of theexisting provision that result from changesin the estimated timing or amount of cashflows, or a change in the discount rate, areadjusted on a prospective basis againstthe asset to which the restoration relates.Where the related asset has reachedthe end of its useful life, all subsequentchanges in the provision are recognised inthe Income Statement as they occur.The charge to the Income Statement isa combination of the depreciation of theasset over the estimated mine life andfinance cost representing the unwind of thediscounting factor.(x) Interest-bearing liabilitiesBorrowings are initially recognised atfair value less any transaction costs.Subsequent to initial recognition,borrowings are measured at amortisedcost. Any difference between the proceeds(net of the transaction costs) and theredemption amount is recognised in theIncome Statement over the period of theborrowings using the effective interestrate method.Borrowings are classified as currentinterest-bearing liabilities where there isan obligation to settle the liability within12 months, and as non-current interestbearingliabilities where the Group has anunconditional right to defer settlement ofthe liability for at least 12 months after thebalance date.(y) Finance costsFinance costs include interest, amortisationof discounts or premiums relating toborrowings, amortisation of ancillary costsincurred in connection with arrangementof borrowings and finance leases and netreceipt or payment from interest rateswaps. Finance costs are expensed in theIncome Statement, except where theyrelate to the financing of projects underconstruction, where they are capitalised upto the date of commissioning or sale.(z) Contributed equityIssued capitalIssued and paid-up capital is recognised atthe fair value of the consideration receivedby the Company. Any transaction costsarising on the issue of ordinary shares arerecognised directly in Equity as a reductionof the share proceeds received, net of tax.Ordinary share capital bears no specialterms or conditions affecting incomeor capital entitlements of the OneSteelshareholders.Ordinary shares have the right to receivedividends as declared and, in the event ofwinding up of the Company, to participatein the proceeds from the sale of all surplusassets in proportion to the number of andamounts paid on shares held.Ordinary shares entitle their holder toone vote, either in person or by proxy, at ameeting of the Company.Employee compensation sharesShares in the OneSteel Group purchasedfor equity-based compensationarrangements are held in Trust anddeducted from Contributed Equity inemployee compensation shares. Uponvesting, the shares are transferred fromemployee compensation shares into theshare-based payments reserve.These shares carry voting rights andthe beneficial holder is entitled to anydividends paid during the vesting period.(aa) Derivative financial instrumentsDerivatives are initially recognised at fairvalue on the date that a derivative contractis entered into and are subsequentlyremeasured at fair value. The methodof recognising the resulting gain orloss depends on whether the derivativequalifies for hedge accounting, and ifso, the nature of the item being hedged.The OneSteel Group designates certainderivatives as:• Hedges of the fair value of recognisedassets or liabilities or firm commitments(fair value hedges)• Hedges of a particular risk associatedwith the cash flows of recognised assetsand liabilities and highly probableforecast transactions (cash flow hedges),or• Hedges of a net investment in a foreignoperation (net investment hedges).