Financial Report 2008 - Leighton Holdings

Notes to the Financial Statements continuedfor the year ended 30 June 20081. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUEDInventoriesInventories are carried at the lower ofcost and net realisable value.Inventories comprise:Property developmentsCost includes the costs ofacquisition, development and holdingcosts such as rates, taxes andfinance costs. Holding costs onproperty developments not underactive development are expensed asincurred.Raw materials and consumablesCost is based on the first-in, first-outprinciple and includes expenditureincurred in acquiring the inventoriesand bringing them to their existingcondition and location.InvestmentsControlled entitiesInvestments in controlled entities arecarried at cost less impairment in theCompany’s financial statements.Equity accounted investmentsInvestments in entities over whichthe Group has the ability to exercisesignificant influence but not control,and jointly controlled entities areaccounted for using equityaccounting principles. Theseinvestments are carried at cost pluspost-acquisition changes in the netassets of the investment. Theconsolidated income statementreflects the Group’s share of theresult of these investments. Wherethere has been a change recogniseddirectly in equity, the Grouprecognises its share of that change.Property, plant and equipmentProperty, plant and equipment isstated at cost less accumulateddepreciation and any impairment invalue.Depreciation and amortisationDepreciation and amortisation iscalculated so as to write off the netbook value of property, plant andequipment over their estimatedeffective useful lives as follows: freehold buildings: straight linemethod - up to 40 years; major plant and equipment:cumulative number of hoursworked - up to 10 years; major plant and equipment -component parts: cumulativenumber of hours worked - up to 10years; leased plant and equipment:straight line method, over the termsof the leases - up to 10 years; waste management assets: straightline method, economic life of thewaste operations - up to 20 years; office and other equipment:diminishing value method - up to10 years; leasehold buildings andimprovements: straight linemethod, over the terms of theleases - up to 40 years.Subsequent costsSubsequent costs are included in thecarrying amount of property, plantand equipment only when it isprobable that the associated futureeconomic benefits will flow to theGroup. All other costs arerecognised in the income statement.Leased assetsLeases under which the Groupassumes substantially all the risksand benefits of ownership areclassified as finance leases. Otherleases are classified as operatingleases.Finance leasesA lease asset and a lease liabilityequal to the lower of the fair value ofthe leased property and the presentvalue of the minimum leasepayments is recorded at the inceptionof the lease. The finance leaseliability is the net present value offuture finance lease rentals andresiduals. Lease liabilities arereduced by repayments of principal.The interest components of the leasepayments are expensed. Contingentrentals, which are potentialincremental lease payments not fixedin amount as they relate to futurechanges, are expensed as incurred.Operating leasesPayments made under operatingleases are expensed on a straightline basis over the term of the lease.GoodwillGoodwill represents the excess of thecost of an acquisition over the fairvalue of the Group’s share of the netidentifiable assets of the acquiredcontrolled entity or business at thedate of acquisition. Goodwill onacquisitions of associates is includedin investments in associates.Goodwill acquired in businesscombinations is not amortised.Goodwill is allocated to related cashgeneratingunits and is tested forimpairment annually or morefrequently if events or changes incircumstances indicate that it mightbe impaired, and is carried at costless accumulated impairment losses.Negative goodwill arising on anacquisition is recognised in theincome statement.Acquisition of assetsAssets acquired are initially recordedat their cost of acquisition being thefair value of the consideration plusincidental costs directly attributable tothe acquisition.ImpairmentThe carrying amounts of the Group’sassets are reviewed at each reportingdate to determine whether there isany indication of impairment.If any such indication exists, theasset’s recoverable amount isestimated. The recoverable amountof goodwill is reviewed at eachreporting date irrespective of anindication of impairment.Leighton Holdings Limited Financial Report 2008 NOTES TO THE FINANCIAL STATEMENTS 8