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NOTES TO THE FINANCIAL STATEMENTS CONTINUED

NOTE 1 — SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

For employee performance shares issued by the Company
to employees of subsidiaries, the amount recognised as
an employee expense by the Group in respect of those
shares is charged to and recovered from subsidiaries by
the Company.

(ii) Management Share Option Plan
The Management Share Option Plan allowed Group
employees to acquire shares of the Parent Entity. No new
options have been issued under this plan since September
2004. The fair value of options granted was recognised as
an employee expense with a corresponding increase in
equity reserves. The fair value was measured at grant date
and spread over the period during which the employees
become unconditionally entitled to the options. The fair
value of the options granted was measured using a
binomial option pricing model, taking into account the
terms and conditions upon which the options were
granted. The amount recognised as an expense was
adjusted to reflect the actual number of options that are
expected to vest, except where forfeiture was only due to
share prices not achieving the threshold for vesting.

(iii) Employee Share Plan
The Company has in prior years issued shares to certain
employees under an employee share plan. No shares have
been issued under this plan since February 1998. Other
than costs incurred in administering the scheme which are
expensed as incurred, the scheme does not result in any
expense to the Group.

(t) Revenue recognition
Revenues are recognised at fair value of the consideration
received net of the amount of goods and services tax (“GST”).

(i) Sale of Goods
Revenue from the sale of goods comprises revenue earned
(net of returns, discounts, allowances and GST) from the
provision of products to entities outside the Group.
Revenue from the sale of goods is recognised when
significant risks and rewards of ownership of goods pass
to the customer.

(ii) Rendering of Services
Revenue from rendering services is recognised in the
period in which the service is provided. Revenue not yet
recognised because the service is yet to be provided, is
shown on the Balance Sheet under other liabilities as
deferred revenue.

(iii) Finance Revenue
Finance revenue includes interest and dividend income.
Interest income is recognised as it accrues, taking into
account the effective yield on the financial asset. Dividend
income is recognised on the date that the Group’s right to
receive payment is established.

(iv) Rental Income
Rental income is recognised in the Income Statement on a
straight-line basis over the term of the lease. Lease
incentives granted are recognised as an integral part of the
total rental income.

(v) Sale of Non-current Assets
The gain or loss on disposal is calculated as the difference
between the carrying amount of the asset at the time of
disposal and the net proceeds on disposal.

(u) Goods and Services Tax
Revenues, expenses and assets are recognised net of the
amount of GST, except where the amount of GST incurred is
not recoverable from the Australian Taxation Office (“ATO”). In
these circumstances, the GST is recognised as part of the cost
of acquisition of the asset or as part of an item of expense.

Receivables and payables are stated with the amount of GST
included.

The net amount of GST recoverable from, or payable to, the ATO
is included as a current asset or liability in the Balance Sheet.

Cash flows are included in the Statement of Cash Flows on a
gross basis. The GST components of cash flows arising from
investing and financing activities which are recoverable from,
or payable to, the ATO are classified as operating cash flows.

(v) Finance Costs
Finance costs include interest, amortisation of discounts or
premiums relating to borrowings, amortisation of ancillary costs
incurred in connection with arrangement of borrowings, and
lease finance charges. Ancillary costs incurred in connection
with the arrangement of borrowings are capitalised and
amortised over the life of the borrowings.

Finance costs are expensed as incurred unless they relate to
qualifying assets. Qualifying assets are assets which take more
than 12 months to get ready for their intended use or sale.
Where funds are borrowed specifically for the acquisition,
construction or production of a qualifying asset, the amount
of borrowing costs capitalised is that incurred in relation
to that borrowing, net of any interest earned on those
borrowings. Where funds are borrowed generally, borrowing
costs are capitalised using a weighted average interest rate
applicable to the entity’s borrowings during the period.

(w) Taxation
(i) Income Tax
Income tax on the Income Statement for the periods
presented comprises current and deferred tax. Income tax
is recognised in the Income Statement except to the extent
that it relates to items recognised directly in equity, in which
case it is recognised in equity.

Current tax is the expected tax payable on the taxable
income for the year, using tax rates enacted or
substantially enacted at the balance sheet date, and any
adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability
method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation
purposes. The following temporary differences are not
provided for: initial recognition of goodwill; the initial
recognition of assets or liabilities that affect neither
accounting nor taxable profit; and differences relating
to investments in subsidiaries to the extent that they will
probably not reverse in the foreseeable future. The amount
of deferred tax provided is based on the expected manner
of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively
enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that
it is probable that future taxable profits will be available
against which the asset can be utilised. Deferred tax assets
are reduced to the extent that it is no longer probable that
the related tax benefit will be realised.

NOTE 1 — SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

(ii) Tax Consolidation Regime
The Company is the head entity in the tax-consolidated
group comprising all the Australian wholly-owned
subsidiaries. The head entity recognises all of the
current tax liabilities of the tax-consolidated group.

The tax-consolidated group has entered into a tax
funding agreement that requires Australian wholly-owned
subsidiaries to make contributions to the head entity
for current tax liabilities arising from external transactions
occurring after the implementation of tax consolidation.

Under the tax funding agreement, the contributions are
calculated using a “group allocation method” so that the
contributions are equivalent to the tax balances generated
by external transactions entered into by wholly-owned
subsidiaries. The contributions are payable as set out in
the agreement and reflect the timing of the head entity’s
obligations to make payments for tax liabilities to the
relevant tax authorities.

The Company recognises deferred tax assets arising from
unused tax losses of the tax-consolidated group to the
extent that it is probable that future taxable profits of the
tax-consolidated group will be available against which the
asset can be utilised. Any subsequent period adjustments
to deferred tax assets arising from unused tax losses as a
result of revised assessments of the probability of recovery
are recognised by the Company only.

(x) Segment Reporting
A segment is a distinguishable component of the Group that
is engaged either in providing products or services (“business
segment”), or in providing products or services within a
particular economic environment (“geographical segment”),
which is subject to risks and rewards that are different from
those of other segments.

(y) Earnings per Share
Basic earnings per share (“EPS”) is calculated by dividing
the profit for the period attributable to members of the Parent
Entity by the weighted average number of ordinary shares
of the Parent Entity.

Diluted EPS adjusts the figures used in the determination of
basic EPS to take into account the after-income tax effect
of interest and other financing costs associated with dilutive
potential ordinary shares and the weighted average number
of shares assumed to have been issued for no consideration in
relation to dilutive potential ordinary shares. Dilutive potential
ordinary shares comprise share options granted to employees.

(z) Accounting Estimates and Judgements
Estimates and judgements are continually evaluated and are
based on historical experience and other factors, including
expectations of future events that may have a financial impact
on the Group and that are believed to be reasonable under
the circumstances.

The estimates and judgements that have a significant risk of
causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are
discussed below.

Recoverable Value of Plant and Equipment

The Group has undertaken assessments of whether plant and
equipment at cinema sites could be deemed to be impaired.
These assessments involve an estimation of future trading
performance to determine the recoverable amounts.

The Group has also previously recognised impairment
write-downs for a number of cinema sites. Where trading
circumstances improve at a site, an assessment of recoverable
value is made to determine if an impairment loss can be
reversed, net of depreciation that would have been incurred
had no impairment loss been recognised. These determinations
also require estimates and assumptions with regard to the
future trading performance of those sites.

Contingent Assets and Liabilities

Also refer to Note 31 for estimates and judgement made in
relation to contingent assets and liabilities.

Critical Accounting Judgements in Applying the Group’s
Accounting Policies — Investment Properties

In the year to 30 June 2006, the Group acquired two properties
which adjoin the State Theatre Building in Market and George
Streets, Sydney at a cost of $81,522,000. The Group receives
rental income in respect of both properties acquired. Pending
completion of planning for the long term use of these
combined properties, including the State Theatre property,
these properties have not been classified as investment
properties. These properties have been accounted for using
the cost basis rather than the fair value basis which is applied
for investment properties.

(aa) Discontinued Operations

A discontinued operation is a component of the Group’s
business that represents a separate major line of business
that has been disposed of or is held for sale. Classification
as a discontinued operation occurs upon disposal or when
the operation meets the criteria to be classified as held for
sale, if earlier. When an operation is classified as a
discontinued operation, the comparative Income Statement
is restated as if the operation had been discontinued from
the start of the comparative period.

NOTE 2 — SEGMENT REPORTING

Segment information is presented in respect of the Group’s
business and geographical segments.

Inter-segment pricing is on an arm’s length basis.

Segment results, assets and liabilities include items directly
attributable to a segment as well as those that can be
allocated on a reasonable basis. Unallocated items mainly
comprise income earning assets and revenue, interest bearing
loans and borrowings and expenses, and corporate assets
and expenses.

Segment capital expenditure is the total cost incurred during
the period to acquire segment assets that are expected to be
used for more than one period.