costs incurred in negotiating an operating lease are
added to the carrying amount of the leased asset
and recognised as an expense over the lease term
on the same basis as rental income.
(m) Fair value
(i) Borrowings
Borrowings are initially recognised at fair value,
net of transaction costs incurred. Borrowings are
subsequently measured at amortised cost. Any
difference between the proceeds (net of transaction
costs) and the redemption amount is recognised
in the Consolidated Income Statement over the
period of the borrowings using the effective interest
method. Fees paid on the establishment of loan
facilities are recognised as transaction costs of the
loan to the extent that it is probable that some or
all of the facility will be drawn down. To the extent
there is no evidence that it is probable that some
or all of the facility will be drawn down, the fee is
capitalised as a prepayment for liquidity services
and amortised over the period of the facility to
which it relates.
(ii) Infrastructure assets
The fair value for infrastructure assets is calculated
using the income method approach, whereby the
measurement reflects current market expectations
of future cashflows discounted to their present
value for each cash generating unit that would
be considered reasonable by a normal market
participant. The estimated future cash flows are
discounted to their present value using a post-
tax discount rate that reflects current market
assessments of the time value of money and the
business risk.
(iii) Impairment
The carrying amounts of the Group’s non-financial
assets, other than inventories and deferred tax
assets, are reviewed at each reporting date to
determine whether there is any indication of
impairment. If any indication exists, then the
asset’s recoverable amount is estimated. An
impairment loss is recognised if the carrying
amount of an asset or cash-generating unit (CGU)
exceeds it recoverable amount.
The recoverable amount of an asset or CGU is the
greater of its value in use and its fair value less costs
to sell. In assessing the fair value, the estimated
cash flows inclusive of growth opportunities
and capital expenditure are discounted to their
present value using a post-tax discount rate that
reflects current market assessments of the time
value of money and the risk specific to the CGU. In
assessing value in use, the estimated future cash
flows are discounted to their present value using a
pre-tax discount rate that reflects current market
assessments of the time value of money and the
risks specific to the CGU. For impairment testing,
assets are grouped together into the smallest
group of assets that generates cash inflows from
continuing use that are largely independent of the
cash inflows of other assets or CGUs.
Impairment losses are recognised in profit and loss.
Impairment losses recognised are allocated to the
asset carrying amounts within the CGUs on a pro rata
basis. An impairment loss is reversed only to the extent
that the asset’s carrying amount does not exceed the
carrying amount that would have been determined,
net of depreciation or amortisation, if no impairment
loss had been recognised.
As the group applies fair value less cost to sell
valuations to most non-financial assets, the carrying
value will be the fair value less cost to sell which is
the estimated recoverable amount and therefore a
separate impairment calculation is not required.
(iv) Revaluation
The Group’s infrastructure assets were revalued
as at 30 June 2011.The next tri annual revaluation
is scheduled for 30 June 2014, although annual
testing is undertaken to ensure material
movements are reflected during the valuation cycle.
Whilst the June 2005 revaluation was only applied
to South Australian and Western Australian owned
assets, the June 2008 and June 2011 revaluation
applies to all leased and owned infrastructure
assets. These assets were revalued using an
income method approach to provide an estimate
of the fair value of infrastructure assets as there
are no similar market quoted assets. Revaluation
of assets is only applied to infrastructure assets
on the basis that non infrastructure such as motor
vehicles, information technology and other non-
infrastructure assets are transferable within the
Group and have a short life and a ready market. The
written down value of these assets is in line with
their fair value less cost to sell.
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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