for the year ended 30 September 2011
 

Accounting policies

 

The annual financial statements, comprising Reunert (referred to as “the company”), its subsidiaries, special purpose entities (SPEs), joint ventures, and associates (together referred to as “the group”), incorporate the following principal accounting policies, set out below. In these accounting policies “the group” refers to the group and company.

Statement of compliance

The group annual financial statements have been prepared in accordance with IFRS and interpretations of those standards as issued by the International Accounting Standards Board (IASB) and the IFRS Interpretations Committee (formerly IFRIC) of the IASB, the requirements of the JSE Limited and the requirements of the Companies Act, Act 71 of 2008.

Adoption of new and revised IFRSs

The following new and revised Standards and Interpretations have been adopted in the current period and have not had any material impact on the amounts reported in the current or prior years but may affect the accounting for future arrangements or transactions:

IFRS 2 – Share Based Payments   The amendment clarifies the accounting for group cash-settled share-based payment transactions in the individual annual financial statements of an entity receiving the goods or services when another group entity has the obligation to settle awards.  
IAS 17 – Leases   The amendment to the standard requires that leases of land are classified as either a finance or operating lease by applying the general principles of this standard. Leases relating to land were previously considered as operating leases.  
Improvements to IFRSs issued in 2009   The application of these amendments has not had any material effect on the amounts reported in the financial statements.  

At the date of these financial statements, the following relevant Standards and Interpretations were in issue but not yet effective:

Standards and Interpretations   Details of Amendment   Effective for annual periods beginning on or after  
IFRS 3 – Business Combinations  
  • Amendments to the transition requirements for contingent consideration from a business combination that occurred before the effective date of the revised IFRS.
1 January 2011  
 
  • Clarification of the measurement of non-controlling interests.
1 January 2011  
 
  • Additional guidance provided on un-replaced and voluntarily replaced share-based payment awards.
1 January 2011  
IFRS 7 – Financial Instruments: Disclosure  
  • The amendment clarifies the intended interaction between qualitative and quantitative disclosures of the nature and extent of risks arising from financial instruments and removed some disclosure items which were seen to be superfluous or misleading.
1 January 2011  
 
  • The amendments require additional disclosure on transfer transactions of financial assets, including the possible effects of any residual risks that the transferring entity retains. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period.
1 July 2011  
IFRS 9 – Financial Instruments  
  • New standard that forms part of a three-part project to replace IAS 39 – Financial Instruments: Recognition and Measurement.
1 January 2013  
IFRS 10 – Consolidated Financial Statements  
  • New standard that replaces the consolidation requirements in SIC 12 – Consolidation: Special Purpose Entities and IAS 27 – Consolidated and Separate Financial Statements.
1 January 2013  
IFRS 11 – Joint Arrangements  
  • New standard that deals with accounting for joint arrangements. The standard focuses on the rights and obligations of the arrangement, rather than its legal form. The standard requires a single method for accounting for interests in jointly controlled entities.
1 January 2013  
IFRS 12 – Disclosure of Interests in Other Entities  
  • New and comprehensive standard on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, SPEs and other off balance sheet vehicles.
1 January 2013  
IFRS 13 – Fair Value Measurement  
  • New guidance on fair value measurement and disclosure requirements.
1 January 2013  
IAS 1 – Presentation of Financial Statements  
  • Clarification of statement of changes in equity.
1 January 2011  
  • New requirements to group together items within other comprehensive income that may be reclassified to the profit or loss section of the income statement in order to facilitate the assessment of their impact on the overall performance of an entity.
1 July 2012  
IAS 12 – Income Taxes  
  • Rebuttable presumption introduced that an investment property will be recovered in its entirety through sale.
1 January 2012  
IAS 19 – Employee benefits  
  • Amended Standard resulting from the Post-Employment Benefits and Termination Benefits projects.
1 January 2013  
IAS 24 – Related Party Disclosure  
  • Revised definition of related parties.
1 January 2011  
IAS 27 – Consolidated and Separate Financial Statements  
  • Amendments resulting from the issue of IFRS 10, 11 and 12.
1 January 2013  
IAS 28 – Investments in Associates  
  • Amendments resulting from the issue of IFRS 10, 11 and 12.
1 January 2013  
IAS 34 – Interim Financial Reporting  
  • Clarification of disclosure requirements around significant events and transactions including financial instruments.
1 January 2011  
IFRIC 13 – Customer Loyalty Programmes  
  • Clarification on the intended meaning of the term “fair value” in respect of award credits.
1 January 2011  

The directors anticipate that IFRS 9, 10, 11, 12 and 13 will be adopted in the group’s consolidated financial statements for the annual period beginning 1 October 2013. The application of these standards will have a significant impact on amounts reported in respect of the group’s financial assets and financial liabilities. However, it is not practical to provide a reasonable estimate of the effect until a detailed review has been completed. The impact of the adoption of the other standards and interpretations has not yet been determined. However, we do not anticipate these standards having a major impact on the group.

Basis of preparation

The group annual financial statements are presented in South African rand, which is the currency in which the majority of the group’s transactions are denominated. The group annual financial statements have been prepared on the going concern and historical cost basis except for financial instruments that are measured at revalued amounts or fair values, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

The accounting policies set out below have been applied, in all material respects, consistently by all group entities to all periods presented in these consolidated financial statements.

Basis of consolidation

The group annual financial statements incorporate the financial statements of the company, its subsidiaries, SPEs and joint ventures.

Subsidiaries

A subsidiary is an entity over which the group has control. Control exists where the company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account.

The operating results of subsidiaries are included from the date that control commences to the date that control ceases.

Changes in the group’s ownership interests in subsidiaries that do not result in the group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the group’s interest and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the company.

A business combination of entities under common control is excluded from IFRS 3 – Business Combinations as it involves the combination of businesses that are ultimately controlled by the same company before and after the transaction. Such business combinations will be accounted for at the net asset value of the business transferred and therefore no goodwill arises on these business combinations.

Non-controlling interests in subsidiaries are identified separately from the group’s equity therein. The interests of non-controlling shareholders may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. The choice of measurement basis is made on an acquisition-by-acquisition basis. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Intra-group transactions and balances, including any unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in full in preparing the consolidated annual financial statements.

A SPE is an entity where in substance:

  • The activities of the SPE are being conducted on behalf of the group according to its specific business needs so that the group obtains the benefits from the SPE’s operations
  • The group has the decision-making powers to obtain the majority of the benefits of the activities of the SPE, or by setting up an “autopilot” mechanism, the group has delegated these decision-making powers
  • The group has the rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks incident to the activities of the SPE
  • The group retains the majority of the residual or ownership risks related to the SPE or its assets in order to obtain the benefits from its activities.

The operating results of SPEs are included from the date that control commences to the date that control ceases.

Joint ventures

Joint ventures are those entities which are not subsidiaries and over which the group exercises joint control, which is defined as the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control.

Joint ventures are accounted for using the proportionate consolidation method, whereby the group’s share of each of the assets, liabilities, income, expenses and cash flows of joint ventures are included on a line-by-line basis in the consolidated annual financial statements.

When a group entity transacts with a jointly controlled entity of the group, unrealised profits and losses are eliminated to the extent of the group’s interest in the joint venture.

Any difference between the cost of the acquisition and the group’s share of the net identifiable assets, fairly valued, is recognised and treated according to the group’s accounting policy for goodwill.

Goodwill

All business combinations are accounted for by applying the acquisition method. The cost of acquisition is measured at the aggregate of the fair values, at the date of acquisition, of assets acquired, liabilities incurred or assumed, and equity instruments issued by the group in exchange for control of the acquiree, excluding any costs directly attributable to the business combination. All acquisition related costs are recognised as expenses in the period in which the costs are incurred and the services received, except for the costs relating to the issue of debt or equity instruments, which are recognised as financial assets.

Goodwill represents amounts arising on acquisition of subsidiaries and joint ventures and is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquirer, and the fair value of the acquirer’s previously held equity interest in the acquiree, (if any), over the net of the acquisition-date amounts of the identifiable assets acquired and liabilities and contingent liabilities assumed. If, after assessment, the group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the acquirer’s consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interests in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

When the consideration transferred in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the “measurement period” (a period not exceeding one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

Subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration classified as equity is not remeasured at subsequent reporting dates and its settlement is accounted for as within equity. Contingent consideration that is classified as an asset or liability is remeasured at subsequent reporting dates in accordance with the applicable accounting standard with the corresponding gain or loss being recognised in profit or loss.

If the initial accounting for business combinations is incomplete by the end of the reporting period in which the combination occurs, the group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period, or additional assets and liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that time.

Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.

Goodwill is allocated to cash-generating units (CGUs) expected to benefit from the synergies of the combination. Goodwill is tested annually for impairment or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in subsequent periods.

On disposal of a subsidiary or a jointly controlled entity, the attributable goodwill is included in the determination of the profit or loss on disposal.

Investments in subsidiaries

In the company financial statements, investments in subsidiaries are initially recognised at cost and are subsequently carried at cost less any impairment losses recognised.

The carrying values are reduced by any impairment losses recognised to reflect irrecoverable amounts.

Property, plant and equipment and investment property

All owner-occupied property and investment property is initially recognised at cost.

Investment properties are held to earn rental income and for capital appreciation, whereas owner-occupied properties are held for use by the group, in the supply of goods, services or for administration purposes.

Property, plant and equipment in the course of construction for production, supply or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Depreciation of these assets, on the same basis as other property, plant and equipment, commences when the assets are ready for their intended use.

Land is not depreciated and is stated at cost less accumulated impairment losses.

All other items of plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of normal production overheads.

Where an item of property, plant and equipment comprises major components with different useful lives, these components are accounted for as separate items.

Subsequent expenditure relating to an item of property, plant and equipment is capitalised when it is probable that future economic benefits will flow to the group and the cost of the item can be measured reliably. All other subsequent expenditure (repairs and maintenance) is recognised as an expense when it is incurred.

Profits or losses on disposal of property, plant and equipment are the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement. On disposal of an item of property, plant and equipment that is ordinarily sold but was held for rental purposes, the net carrying value of the item is transferred to inventory directly prior to the sale. The proceeds from the sale of the item is included in revenue.

Depreciation is provided on a straight-line basis over the estimated useful lives of property, plant and equipment in order to reduce the cost of the asset to its residual value.

Residual value is the estimated amount that the group would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its useful life.

The depreciation methods, estimated remaining useful lives and residual values are reviewed at least annually.

Intangible assets

Intangible assets acquired separately

Intangible assets are initially recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses.

Subsequent expenditure on intangible assets is capitalised only when it increases future economic benefits embodied in the specific asset to which it relates. All other subsequent expenditure is expensed as incurred.

Intangible assets with finite useful lives are amortised on a straight-line basis over their estimated useful lives. The amortisation methods and estimated remaining useful lives are reviewed at least annually with the effect of any changes in estimate being accounted for in future periods. Intangible assets with an indefinite useful life are not amortised but are tested at least annually for impairment.

Internally-generated intangible assets – research and development expenditure

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated:

  • the technical feasibility of completing the intangible asset so that it will be available for use or sale
  • the intention to complete the intangible asset and use or sell it
  • the ability to use or sell the intangible asset
  • how the intangible asset will generate probable future economic benefits
  • the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and
  • the ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as the cost).

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.