STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
A controlled entity is any entity where the Victorian Livestock Exchange Pty Ltd has the power to govern the financial and operating policies so as to obtain benefits from its activities. In assessing the power to govern, the existence and effect of holdings of actual and potential voting rights are considered.
All the financial information of all the controlled entities will be incorporated into the consolidated group result in the Consolidated Statement of Comprehensive Income and the Statement of Financial Position. Where controlled entities enter or leave the consolidated group during a year, their operating results will be included or excluded from the date the control was obtained or until the date control ceased.
Inter-company balances and transactions between entities in the consolidated group, including any unrealised profits or losses, are eliminated on consolidation. Accounting policies of the subsidiaries will be changed where necessary to ensure consistency with those policies applied by the parent entity.
(b) Income Tax
The income tax expense (revenue) for a year comprises current income tax expense (income) and deferred tax expense (income).
Current income tax expense charged to the profit or loss will be the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities (assets) will be therefore measured at the amounts expected to be paid to (recovered from) the relevant tax authority.
Deferred income tax expense will reflect movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses.
Current and deferred income tax expense (income) will be charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity.
Deferred tax assets and liabilities will be ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets may also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.
Deferred tax assets and liabilities will be calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at reporting date. Their measurement will reflect the manner in which management expects to recover or settle the carrying amount of the related asset or liability.
Deferred tax assets relating to temporary differences and unused tax losses will be recognized only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilized.
Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities will not recognized where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future.
Current tax assets and liabilities will be offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities will be offset where a legally enforceable right of set-off exists the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement of simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled.
(c) Property, plant and equipment
Each class of property, plant and equipment will be carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses.
Freehold land and buildings will be shown at their fair value. Fair Value is the amount for which an asset could be exchanged between knowledgeable willing parties in an arm’s length transaction. It is determined by the directors based on their knowledge of the property held and information provided by external independent valuers. Independent valuations are obtained every three years.
Increases in the carrying amount arising from the revaluation of land and buildings will be credited to a revaluation reserve in equity. Decreases that offset previous increases of the same asset will be charged against this revaluation reserve. When the decrease exceeds the value in the revaluation reserve the excess will be charged to the income statement.
Any accumulated depreciation at the date of revaluation will be eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset.
Plant and Equipment
Plant and equipment will be measured on the cost basis, less depreciation and impairment losses.
The carrying amount of plant and equipment will be reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount will be assessed on the basis of the expected net cash flows that will be received from the assets employment and subsequent disposal. The expected net cash flows will be discounted to their present values in determining recoverable amounts.
The cost of fixed assets constructed within the economic entity will include the cost of materials and direct labour.
Subsequent costs will be 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. All other repairs and maintenance will be charged to the income statement during the financial period in which they are incurred.
The depreciable amount of all fixed assets including building and capitalised lease assets, but excluding freehold land, will be depreciated on a straight line basis over their useful lives to the consolidated group commencing from the time the asset is held ready for use. Leasehold improvements will be depreciated over the shorter of either the unexpired period of the lease or the estimated useful life of the improvement.
The depreciation rates used for each class of depreciable assets are
Freehold buildings: 2.0% to 40.0%
Plant and equipment: 2.0% to 33.3%
The assets’ residual values and useful lives will be 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.
Gains and losses on disposals will be determined by comparing proceeds with the carrying amount. These gains and losses will be included in the income statement. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset will be transferred to retained earnings.
Leases of fixed assets where substantially all the risks and benefits incidental to ownership of the asset, but not the legal ownership, is transferred to entities within the consolidated group will be classified as finance leases.
Finance leases will be capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments will be allocated between the reduction of the lease liability and the lease interest expense for the period.
Leased assets will be depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term.
Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, will be charged as expenses in the periods in which they are incurred.
Lease incentives under operating leases will be recognised as a liability and amortised on a straight-line basis over the life of the lease term.
(e) Financial Instruments
Initial Recognition and Measurement
Financial assets and financial liabilities will be recognized when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this will be equivalent to the date that the company commits itself to either purchase or sell the asset (i.e. trade date accounting is adopted).
Financial instruments will be initially measured at fair value plus transaction costs, except where the instrument is classified ‘at fair value through profit or loss’ in which case transaction costs will be expensed to profit or loss immediately.
Classification and subsequent measurement
Finance instruments will be subsequently measured at either fair value, amortised cost using the effective interest rate method or cost. Fair value represents the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties. Where available, quoted prices in an active market are used to determine fair value, in other circumstances, valuation techniques are adopted
Amortised cost will be calculated as: (i) the amount at which the financial asset or financial liability is measured at initial recognition, (ii) less principal repayments; (iii) plus or minus the cumulative amortisation of the difference, if any, between the amount initially recognised and the maturity amount calculated using the effective interest method; and (iv) less any reduction for impairment.
The effective interest method will be used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss.
The group does not designate any interests in subsidiaries. associates or joint venture entities as being subject to the requirements of accounting standard s specifically applicable to financial instruments,
Financial assets at fair value through profit and loss
Financial assets will be classified at fair value through profit or loss when they are either held for trading for the purpose of short term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets will be subsequently measured at fair value with changes on carrying value being included in profit or loss.
Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method.
Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the group s intention to h0jd these investments to maturity. They are subsequently measured at amortised cost.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are either not capable of being classified into other categories of financial assets due to their nature or they are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments
Non-derivative financial liabilities will be recognised at amortised cost, comprising original debt less principal payments and amortisation.
Fair value will be determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value of all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models.
At each reporting date, the group assess whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument will be considered to determine whether impairment has arisen. Impairment losses will be recognised in the income statement.
A material financial guarantee may be recognised as a financial liability under the following circumstances. If the issuer is required to make specified payments to reimburse the holder for any losses if a specified debtor fails to make payments when they are due. The liability will be valued at a fair value when it is initially recognised. The guarantee will be subsequently measured at the higher of the best estimate of the obligation and the amount initially recognised less, when appropriate, cumulative amortisation in accordance with AASB 118: Revenue. Where the entity gives guarantees in exchange for a fee, revenue is recognised under AASB 118.
The fair value of financial guarantee contracts will be assessed using the probability weighted discounted cash flow approach. The probability will be based on:
– the likelihood of the guaranteed party defaulting in a year’s period
– the proportion of the exposure that is not expected to be recovered due to the guaranteed party defaulting; and
– the maximum loss exposed if the guaranteed party were to default
Financial assets will be derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities will be derecognised where the related obligations are either discharged, cancelled or expire.
(The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, will be recognised in profit or loss.
(f) Impairment of Assets
At each reporting date, the group will review the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, will be compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount will be expensed to the income statement.
Impairment testing will be performed annually for goodwill and intangible assets with indefinite lives.
Where it is not possible to estimate the recoverable amount of an individual asset, the group will estimate the recoverable amount of the cash-generating unit to which the asset belongs.
(g) Interests in Joint Ventures
The investments in any joint venture will be carried at recoverable amount in the financial report.
Goodwill will be initially recorded at the amount by which the purchase price for a business exceeds the fair value attributed to its net assets at date of acquisition. Goodwill will be tested annually for impairment and carried at cost less accumulated impairment losses.
Intellectual property includes the trademarks, logos, names, research material, financial data, records, feasibility studies, copyrights and other material necessary to the establishment and conduct of the business of the company and will be recognised at cost of acquisition. Intellectual property has an indefinite life and will be tested annually for impairment and carried at cost less accumulated impairment losses.
(i) Employee Benefits
Provision is made for the economic entity’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year will be measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year will be measured at the present value of the estimated future cash outflows to be made for those benefits.
Provisions will be recognised when the group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.
(k) Cash and Cash Equivalents
Cash and cash equivalents will include cash on hand, deposits held at call with banks or financial institutions, net of outstanding bank overdrafts. Bank overdrafts will be shown within short-term borrowings in current liabilities on the balance sheet.
Revenue from the rendering of a service will be recognised upon the delivery of the service to the customers. Interest revenue will be recognised on a proportional basis taking into account the interest rates applicable to the financial assets. All revenue will be stated net of the amount of goods and services tax (GST).
(m) Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, will be added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
All other borrowing costs will be recognised in income in the period in which they are incurred.
(n) Goods and Services Tax (GST)
Revenues, expenses and assets will be recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances the GST will be recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position will be shown inclusive of GST.
Cash flows will be presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which will be disclosed as operating cash flows.
(o) Government Grants
Government grants will be recognised at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met. Grants relating to expense items will be recognised as income over the periods necessary to match the grant to the costs they are compensating. Grants relating to assets will be credited to deferred income at fair value and will be credited to income over the expected useful life of the asset on a straight line basis.
(p) Comparative figures
Where required by Accounting Standards comparative figures will be adjusted to conform to changes in presentation for the current financial year.
(q) Rounding of amounts
The parent entity will applied the relief available to it under ASIC Class Order 98/100 and accordingly, amounts in the financial report and directors’ report will be rounded off to the nearest $1,000.
(r) Critical Accounting Estimates and Judgments
The directors will evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates will assume a reasonable expectation of future events and will be based on current trends and economic data, obtained both externally and within the group.
The Group will assess impairment at the end of each reporting period by evaluation of conditions and events specific to the Group that may be indicative of impairment triggers. Recoverable amounts of relevant assets will be reassessed using value-in-use calculations which incorporate various key assumptions.