McPHERSON’S LIMITED
ANNUAL REPORT 2015
47
(P) FAIR VALUE ESTIMATION
The fair value of financial assets and financial liabilities must be
estimated for recognition and measurement or for disclosure
purposes.
The fair value of interest rate hedge contracts is calculated as the
present value of the estimated future cash flows. The fair value of
forward exchange contracts and other foreign currency contracts are
determined using forward exchange market rates and volatilities at the
balance sheet date.
The net nominal value of trade receivables and payables are assumed
to approximate their fair values. The fair value of financial liabilities for
disclosure purposes is estimated by discounting the future contractual
cash flows at the current market interest rate that is available to the
Group for similar financial instruments.
(Q) PROPERTY, PLANT AND EQUIPMENT
All property, plant and equipment is stated at historical cost less
depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will
flow to the Group and the cost of the item can be measured reliably.
Depreciation on assets is calculated using the straight-line method to
allocate their net cost, over their estimated useful lives, which is
usually between 3 to 10 years.
The assets’ residual values and useful lives are reviewed, and adjusted
if appropriate, at each balance sheet date.
An asset’s carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount (refer to Note 1(I)).
Gains and losses on disposals are determined by comparing proceeds
with carrying amounts and are included in profit or loss.
(R) INTANGIBLE ASSETS
Goodwill
Goodwill is measured as described in Note 1(H). Goodwill on
acquisitions of subsidiaries is included in intangible assets. Goodwill is
not amortised but it is tested for impairment annually, or more
frequently if events or changes in circumstances indicate that it might
be impaired, and is carried at cost less accumulated impairment
losses. Gains and losses on the disposal of an entity include the
carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of
impairment testing. The allocation is made to those cash-generating
units that are expected to benefit from the business combination in
which the goodwill arose, identified according to operating segments.
Brandnames
The Group recognises brandnames that are acquired as part of a
business combination or that are specifically acquired from a vendor.
The Group does not recognise internally generated brandnames.
Brandnames are initially recognised at fair value, if acquired as part of
a business combination, or at cost, if specifically acquired from a
vendor. For brandnames specifically acquired from a vendor and held
at cost, any subsequent adjustments arising from a contingent
consideration arrangement associated with the brand acquisition are
reflected in the carrying value of the relevant brandname. Subsequent
to initial recognition, brandnames are recognised at cost less
accumulated impairment losses.
The major brandnames of the Group, have been, in some cases, in
existence for more than 50 years and continue to be in active use. The
brandnames are utilised predominately on consumer products which
do not suffer from technical obsolescence.
The carrying amount of brandnames are not amortised as the
Directors are of the view that the brandnames held have an indefinite
useful life.
Brandnames are tested individually for impairment annually, or more
frequently if events or changes in circumstances indicate that they
might be impaired. The recoverable amount of a brandname is
determined based on the higher of value-in-use or fair value less costs
to sell.
IT development and software
Costs incurred in developing products or systems and costs incurred in
acquiring software and licenses that will contribute to future period
financial benefits through revenue generation and/or cost reduction
are capitalised to software and systems. Costs capitalised include
external direct costs of materials and service, direct payroll and payroll
related costs of employees’ time spent on the project. Amortisation is
calculated on a straight-line basis generally over three to five years.
IT development costs include only those costs directly attributable to
the development phase and are only recognised where the Group has
an intention and ability to use the asset.
(S) TRADE AND OTHER PAYABLES
These amounts represent liabilities for goods and services provided to
the Group prior to the end of the financial year which remain unpaid.
These amounts are unsecured and are normally settled within 60 days
of recognition. Trade and other payables are presented as current
liabilities unless payment is not due within 12 months after the reporting
period. They are initially recognised at fair value and are subsequently
measured at amortised cost using the effective interest method.
(T) PROVISIONS
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable that an
outflow of resources will be required to settle the obligation, and the
amount has been reliably estimated. Provisions are not recognised for
future operating losses. Provisions are measured at the present value
of management’s best estimate of the expenditure required to settle
the present obligation at the end of the reporting period.
Cost of products and services provided under warranty is expensed as
incurred. The company provides for warranties based on history of
claims and management’s best estimate of expected claims.
(U) EMPLOYEE BENEFITS
Short-term obligations
Liabilities for wages and salaries, including annual leave expected to
be settled within 12 months after the end of the period in which the
employees render the related service are recognised in respect of
employees’ services up to the end of the reporting period and are
measured at the amounts expected to be paid when the liabilities are
settled. The liability for annual leave is recognised in the provision for
employee benefits. All other short-term employee benefit obligations
are presented as payables.