Page 75 - Bradken Annual Report 2013_Page flip

Basic HTML Version

Notes to the consolidated financial statements
30 June 2013
1 Summary of significant accounting policies (continued)
(i) Impairment of assets
(j) Cash and cash equivalents
(k) Receivables
(l) Inventories
Raw materials and stores, work in progress and finished goods
(ii) Construction and service contract work in progress
(iii) Stock Obsolescence
(m) Investments and other financial assets
Financial assets at fair value through profit or loss
Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A
provision for doubtful receivables is established when there is objective evidence that the Group will not be able to collect all
amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s
carrying amount and the value of estimated future cash flows. The amount of the provision is recognised in the income
Construction and service contract work in progress is carried at cost plus profit recognised to date based on the value of work
completed, less progress billings and less provision for foreseeable losses. If there are contracts where progress billings
exceed the aggregate costs incurred plus profits less losses, the net amounts are presented under other liabilities.
Cost includes variable and fixed costs directly related to specific contracts, those costs related to contract activity in general
which can be allocated to specific contracts on a reasonable basis and other costs specifically chargeable under the contract.
Costs expected to be incurred under penalty clauses and rectification provisions are also included.
Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for
impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are
largely independent of the cash inflows from other assets or groups of assets (cash generating units). Non-financial assets
other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
All inventory items are reviewed on a regular basis during the year and a provision raised for products which have not been sold
for one year unless the review indicates that a sale is likely.
The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and
receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for
which the investments were acquired. Management determines the classification of its investments at initial recognition and, in
the case of assets classified as held-to-maturity, re-evaluates this designation at each reporting date.
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this
category if acquired principally for the purpose of selling in the short term. Derivatives are classified as held for trading unless
they are designated as hedges. Assets in this category are classified as current assets if they are expected to be settled within
12 months; otherwise they are classified as non-current.
For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with
financial institutions and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance
Trade receivables are recognised initially at fair value and subsequently, less provision for doubtful debts. Trade receivables
are normally due for settlement no more than 30 days from the date of recognition. They are presented as current assets
unless collection is not expected for more than 12 months after the reporting date.
Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost
comprises direct materials, direct labour and an appropriate portion of variable and fixed overhead expenditure, the latter being
allocated on the basis of normal operating capacity. Costs are assigned to inventory on hand by the method most appropriate
to each particular class of inventory, with the majority being valued on either standard or weighted average basis. Costs of
purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price
in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale
such as expenses of marketing, selling and distribution to customers.
Page 39
Bradken Limited