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NOTES TO THE FINANCIAL STATEMENTS CONTINUED

NOTE 1 — SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

(iv) Transactions Eliminated on Consolidation
Intragroup balances, and any unrealised gains and
losses or income and expenses arising from intragroup
transactions, are eliminated in preparing the consolidated
financial statements.

Unrealised gains arising from transactions with associates
and partnerships are eliminated to the extent of the
Group’s interest in the entity.

Unrealised losses are eliminated in the same way as
unrealised gains, but only to the extent that there is no
evidence of impairment.

Gains and losses are recognised as the contributed assets
are consumed or sold by the associates or partnerships or,
if not consumed or sold by the associate or partnership,
when the Group’s interest in such entities is sold.

(d) Foreign Currency
(i) Foreign Currency Transactions
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
balance sheet date are translated to Australian dollars at the
foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the Income
Statement. Non-monetary assets and liabilities that are
measured in terms of historical cost in a foreign currency
are translated using the exchange rate at the date of the
transaction. Non-monetary assets and liabilities denominated
in foreign currencies that are stated at fair value are
translated to Australian dollars at foreign exchange rates
ruling at the dates the fair value was determined.

(ii) Financial Statements of Foreign Operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation,
are translated to Australian dollars at foreign exchange
rates ruling at the balance sheet date. The revenues and
expenses of foreign operations are translated to Australian
dollars at rates approximating the foreign exchange rates
ruling at the dates of the transactions. Foreign exchange
differences arising on retranslation are recognised in the
foreign currency translation reserve. When a foreign
operation is disposed of, in part or in full, the relevant
amount in the reserve is transferred to profit or loss.

(iii) Net Investment in Foreign Operations
Exchange differences arising from the translation of the net
investment in foreign operations, and of related hedges are
taken to the foreign currency translation reserve. They are
released to profit or loss as an adjustment to profit or loss
on disposal.

(e) Derivative Financial Instruments
The Group uses derivative financial instruments to hedge its
exposure to foreign exchange and interest rate risks arising
from operating, financing activities and investing activities. In
accordance with its treasury policy, the Group does not hold
or issue derivative financial instruments for trading purposes.

Derivative financial instruments are recognised at fair value.
The gain or loss on remeasurement to fair value is recognised
immediately in profit or loss. However, where derivatives qualify
for hedge accounting, recognition of any resultant gain or loss
depends on the nature of the item being hedged (refer Note 1(f)).

The fair value of interest rate swaps is the estimated amount
that the Group would receive or pay to terminate the swap at
the balance sheet date, taking into account current interest
rates and the creditworthiness of the swap counterparties.
The fair value of forward exchange contracts is their quoted
market price at the balance sheet date, being the present
value of the quoted forward price.

(f) Hedging
On entering into a hedging relationship, the Group formally
designates and documents the hedge relationship and the risk
management objective and strategy for undertaking the hedge.
The documentation includes identification of the hedging
instrument, the hedged item or transaction, the nature of the
risk being hedged and how the entity will assess the hedging
instrument’s effectiveness in offsetting the exposure to changes
in the hedged item’s fair value or cash flows attributable to the
hedged risk. Such hedges are expected to be highly effective
in achieving offsetting changes in fair value or cash flows and
are assessed on an ongoing basis to determine that they
actually have been highly effective throughout the financial
reporting periods for which they are designated.

(i) Cash Flow Hedges
Where a derivative financial instrument is designated as a
hedge of the variability in cash flows of a recognised asset
or liability, or a highly probable forecast transaction, the
effective part of any gain or loss on the derivative financial
instrument is recognised directly in equity in the hedging
reserve. When the forecast transaction subsequently
results in the recognition of a non-financial asset or nonfinancial
liability, or the forecast transaction for a nonfinancial
liability becomes a firm commitment for which
fair value hedge accounting is applied, the associated
cumulative gain or loss is removed from equity and
included in the initial cost or other carrying amount of the
non-financial asset or liability. If a hedge of a forecast
transaction subsequently results in the recognition of a
financial asset or a financial liability, then the associated
gains and losses that were recognised directly in equity
are reclassified into profit or loss in the same period or
periods during which the asset acquired or liability
assumed affects profit or loss (i.e. when interest income
or expense is recognised).

For cash flow hedges, the associated cumulative gain or
loss is removed from equity and recognised in the Income
Statement in the same period or periods during which the
hedged forecast transaction affects profit or loss. The
ineffective part of any gain or loss is recognised
immediately in the Income Statement.

Hedge accounting is discontinued when the hedging
instrument expires or is sold, terminated or exercised, or
no longer qualifies for hedge accounting. At that point in
time, any cumulative gain or loss on the hedging instrument
recognised in equity is kept in equity until the forecast
transaction occurs. If a hedge transaction is no longer
expected to occur, the net cumulative gain or loss
recognised in equity is transferred to the Income Statement.

(ii) Hedge of Net Investment in Foreign Operation
The portion of the gain or loss on an instrument used
to hedge a net investment in a foreign operation, that is
determined to be an effective hedge, is recognised directly
in equity. The ineffective portion is recognised immediately
in the Income Statement.

NOTE 1 — SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

(g) Property, Plant and Equipment
(i)
Owned Assets
Items of property, plant and equipment (except for
investment properties — refer Note 1(g)(ii)) are stated
at cost or deemed cost, less accumulated depreciation
and impairment losses.

The cost of assets represents the fair value of the
consideration provided, plus incidental costs directly
attributable to the acquisition and also includes:

•
the initial estimate of the cost at the time of installation
and during the period of use, when relevant and
probable, of removing items and restoring the site
on which they are located (decommissioning); and
•
changes in the measurement of existing liabilities
recognised for decommissioning costs resulting from
changes in the discount rate applied to these future
liabilities or changes to estimates of cost.
Where settlement of any part of cash consideration
is deferred, the amounts payable are recorded at their
present value, discounted at the rate applicable to
the Group if a similar borrowing were obtained from
an independent financier under comparable terms and
conditions. The unwinding of the discount is treated
as interest expense.

Certain items of property, plant and equipment that had
been revalued to fair value on or prior to 1 July 2004, the
date of transition to AASBs, are measured on the basis of
deemed cost, being the revalued amount at the date of
that revaluation.

Where parts of an item of property, plant and equipment
have different useful lives, they are accounted for as
separate items or property, plant and equipment.

(ii)
Investment Properties
Investment properties comprise land and buildings
which are held for long term rental yields or for capital
appreciation, or both, and are not occupied by the
Group. Initially, investment properties are measured at
cost including transaction costs. Subsequent to initial
recognition, investment properties are stated at fair value.

When a property is reclassified to an investment property
following a change in its use, any difference at the date
of transfer between the carrying amount of the property
immediately prior to transfer and its fair value is recognised
directly to the investment property revaluation reserve,
if it is a gain. Any decrease in value is recognised in the
Income Statement.

Gains or losses arising from changes in the fair values of
investment properties are included in the Income
Statement in the period in which they arise.

Investment properties are derecognised when they have
either been disposed of or when the investment property
is permanently withdrawn from use and no future benefit
is expected from its disposal. Any gains or losses on the
derecognition of an investment property are recognised
in the Income Statement in the period of derecognition.

(iii) Leased Assets
Leases for property and plant and equipment under
which the Parent Entity or its controlled entities assume
substantially all the risks and benefits of ownership are
classified as finance leases. Other leases are classified
as operating leases.

Finance leases are capitalised. A lease asset and a lease
liability equal to the present value of the minimum lease
payments are recorded at the inception of the lease.
Contingent rentals are written off as an expense of the
accounting period in which they are incurred. Capitalised
lease assets are depreciated on a straight-line basis over
the term of the relevant lease, or where it is likely the
Group will obtain ownership of the asset, the life of the
asset. They are stated in the Balance Sheet at an amount
equal to the lower of their fair value and the present value
of the minimum lease payments at inception of the lease,
less accumulated depreciation and impairment losses.
Lease liabilities are reduced by repayments of principal.
The interest components of the lease payments are
charged to the Income Statement.

Payments made under operating leases are charged
against profits in equal instalments over the accounting
periods covered by the lease term, except where an
alternative basis is more representative of the pattern
of benefits to be derived from the leased property.

(iv) Subsequent Costs
The Group recognises in the carrying amount of an item
of property, plant and equipment the cost of replacing part
of such an item when that cost is incurred if it is probable
that the future economic benefits embodied within the
item will flow to the Group and the cost of the item can
be measured reliably. All other costs are recognised in the
Income Statement as an expense.

(v) Depreciation
Depreciation is charged to the Income Statement on a
straight-line basis over the estimated useful lives of each
part of an item of property, plant and equipment. Land is
not depreciated. The estimated useful lives in the current
and comparative periods are as follows:

Buildings
40 — 80 years

Plant and equipment
3 — 20 years

Fixtures and fittings
3 — 10 years

Leasehold buildings Shorter of estimated useful
and improvements life and term of lease

Assets are depreciated or amortised from the date of
acquisition or, in respect of internally constructed assets,
from the time an asset is completed and held ready
for use.

Depreciation rates are reviewed annually for appropriateness.
The residual value, if not insignificant, is also reassessed
annually. When changes are made, adjustments are