McPHERSON’S LIMITED
ANNUAL REPORT 2015
45
Tax consolidation legislation
McPherson’s Limited and its wholly-owned Australian controlled
entities have implemented the tax consolidation legislation. As a
consequence, these entities are taxed as a single entity. McPherson’s
Limited, as the head entity in the tax consolidated group, recognises
current tax amounts relating to transactions, events and balances of
the wholly-owned Australian controlled entities in this group as if those
transactions, events and balances were its own, in addition to the
current and deferred tax amounts arising in relation to its own
transactions, events and balances. Amounts receivable or payable
under an accounting Tax Funding Agreement with the tax
consolidated entities are recognised separately as tax-related amounts
receivable or payable. Expenses and revenues arising under the Tax
Funding Agreement are presented as income tax expense (credit).
(G) LEASES
A distinction is made between finance leases, which effectively transfer
from the lessor to the lessee substantially all the risks and benefits
incidental to ownership of leased non-current assets, and operating
leases under which the lessor substantially retains all such risks and
benefits. Where a non-current asset is acquired by means of a finance
lease, the lower of the fair value of leased property and the present
value of the minimum lease payments is established as a non-current
asset at the beginning of the lease term and amortised on a straight-
line basis over its expected economic life. A corresponding liability is
also established and each lease payment is allocated between the
principal component and interest expense.
Operating lease payments (net of any incentives received from the
lessor) are charged to profit or loss on a straight-line basis over the
period of the lease.
(H) BUSINESS COMBINATIONS
The acquisition method of accounting is used to account for all
business combinations regardless of whether equity instruments or
other assets are acquired. The consideration transferred for the
acquisition comprises the fair value of the assets transferred, shares
issued and liabilities incurred or assumed at the date of exchange. The
consideration transferred also includes the fair value of any asset or
liability resulting from a contingent consideration arrangement.
Acquisition related costs are expensed as incurred. Where equity
instruments are issued in an acquisition, the value of the instruments is
their published market price as at the date of exchange unless, in rare
circumstances, it can be demonstrated that the published price at the
date of exchange is an unreliable indicator of fair value and that other
evidence and valuation methods provide a more reliable measure of
fair value. Transaction costs arising on the issue of equity instruments
are recognised directly in equity.
Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are, with limited exceptions,
measured initially at their fair values at the acquisition date. The excess
of the consideration transferred over the fair value of the Group’s share
of the identifiable net assets acquired is recorded as goodwill (refer to
Note 1(R)). If the consideration transferred is less than the fair value of
the net assets of the business acquired, the difference is recognised
directly in profit or loss as a bargain purchase, but only after a
reassessment of the identification and measurement of the net assets
acquired.
Contingent consideration is classified either as equity or a financial
liability. Amounts classified as a financial liability are subsequently
remeasured to fair value with changes in fair value recognised in profit
or loss.
(I)
IMPAIRMENT OF ASSETS
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 tested 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 (cash generating units). Non-financial assets
other than goodwill that suffered an impairment are reviewed for
possible reversal of the impairment at the end of each reporting
period.
(J) CASH AND CASH EQUIVALENTS
For the purpose of presentation in the statement of cash flows, cash
and cash equivalents includes cash on hand and deposits at call which
are readily convertible to cash on hand and which are used in the cash
management function on a day-to-day basis, net of outstanding bank
overdrafts. Bank overdrafts are shown within borrowings in current
liabilities in the balance sheet.
(K) TRADE RECEIVABLES
Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less
provision for impairment. Trade receivables are generally due for
settlement no more than 60 days from the date of recognition.
Collectability of trade receivables is reviewed on an ongoing basis.
Debts which are known to be uncollectible are written off. A provision
for impairment of trade 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.
(L) INVENTORIES
Inventories (including work in progress) are valued at the lower of cost
and net realisable value. Costs are assigned to individual items of
inventory on a weighted average basis. Cost includes the
reclassification from equity of any gains or losses on qualifying cash
flow hedges relating to purchases of inventory. Cost of work in
progress and finished manufactured products includes materials,
labour and an appropriate proportion of factory overhead expenditure,
the latter being allocated on the basis of normal operating capacity.
Costs of purchased inventory are determined after deducting rebates
and discounts. Unrealised profits on inter-company inventory transfers
are eliminated on consolidation. Net realisable value is the estimated
selling price in the ordinary course of business less the estimated costs
necessary to make the sale.
(M) NON-CURRENT ASSETS (OR DISPOSAL
GROUPS) HELD FOR SALE AND DISCONTINUED
OPERATIONS
Non-current assets (or disposal groups) are classified as held for sale if
their carrying amount will be recovered principally through a sale
transaction rather than through continuing use and a sale is considered
highly probable. They are measured at the lower of their carrying
amount and fair value less costs to sell, except for assets such as
deferred tax assets, assets arising from employee benefits and
financial assets.