DigiCore annual financial statements - ShareData

DigiCore annual financial statements
Statement by company secretary 30
Independent auditor's report 31
Statements of financial position 36
Statements of comprehensive income 37
Statements of changes in equity 38
Statements of cash flows 40
Accounting policies 41
Notes to the group and company annual financial statements 54
Group segmental analysis 86
DigiCore Annual Report 201030
The directors are required in terms of the Companies Act of South Africa, 1973 to maintain adequate accounting records and are responsible for the content and integrity of the group and company annual financial statements and related financial information included in this report. It is their responsibility to ensure that the group and company annual financial statements fairly present the state of affairs of the group as at the end of the financial year and the results of its operations and cash flows for the period then ended, in conformity with International Financial Reporting Standards. The external auditors are engaged to express an independent opinion on the group and company annual financial statements.
The group and company annual financial statements are prepared in accordance with International Financial Reporting Standards and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates.
The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the group and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the board sets standards for internal control aimed at reducing the risk of error or loss in a cost effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the group and all employees are required to maintain the highest ethical standards in ensuring the group’s business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the group is on identifying, assessing, managing and monitoring all known forms of risk across the group. While operating risk cannot be fully eliminated, the group endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints.
The directors are of the opinion, based on the information and explanations given by management, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the group and company annual financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss.
The directors have reviewed the group’s cash flow forecast for the year to 30 June 2011 and, in the light of this review and the current financial position, they are satisfied that the group has or has access to adequate resources to continue in operational existence for the foreseeable future.
The external auditors are responsible for independently reviewing and reporting on the group and company annual financial statements. The group and company annual financial statements have been examined by the group's external auditors and their report is presented on page 31.
The group and company annual financial statements set out on pages 32 to 88, which have been prepared on the going concern basis, were approved by the board and authorised for issue on 20 September 2010 and were signed on its behalf by:
NA Gasa NH Vlok Chairman of the board Chief executive officer
Centurion 20 September 2010
Directors' responsibilities and approval
I certify that, to the best of my knowledge, in accordance with the Companies Act 1973 (as amended), the company has lodged with the Registrar all returns as are required by a public company in terms of the Act, for the year ended 30 June 2010 and, furthermore, that all such returns are true, correct and up to date.
DA Nieuwoudt CA(SA) Company secretary
Statement by company secretary
DigiCore Annual Report 2010 31
To the members of DigiCore Holdings Limited We have audited the group and company annual financial statements of DigiCore Holdings Limited, which comprise the statements of financial position as at 30 June 2010, and the statements of comprehensive income, statement of changes in equity and statements of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes, and the directors' report, as set out on pages 32 to 88.
Directors' responsibility for the group and company annual financial statements The company’s directors are responsible for the preparation and fair presentation of these group and company annual financial statements in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa, 1973. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of group and company annual financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor's responsibility Our responsibility is to express an opinion on these group and company annual financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the group and company annual financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the group and company annual financial statements. The procedures selected depend on the auditors' judgement, including the assessment of the risks of material misstatement of the group and company annual financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the group and company annual financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the group and company annual financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the group and company annual financial statements present fairly, in all material respects, the financial position of DigiCore Holdings Limited as at 30 June 2010, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa, 1973.
PKF (Pta) Inc. Chartered Accountants (S.A.) Registered Auditors Registration Number: 2000/026635/21 Per: Sanjay Ranchhoojee
Pretoria 20 September 2010
The directors submit their report for the year ended 30 June 2010.
Review of activities The company is the ultimate holding company of an international group of companies which is incorporated in South Africa and listed on the main board of the JSE Limited. The group is engaged in the manufacturing and distribution of fleet management and vehicle tracking solutions and distribution of fleet management products using telematics locally and throughout the world.
The operating results and state of affairs of the company are fully set out in the attached group and company annual financial statements and do not in our opinion require any further comment.
Going concern The group and company annual financial statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business.
Events after the reporting period For details of post balance sheet date events, refer to note 42 to the group and company annual financial statements.
Directors' interest in contracts All directors’ interest in contracts were adequately disclosed to the members of the company and noted in the register of directors’ interest in contracts as required by the Companies Act 1973, as amended.
Accounting policies The group has adopted all of the new and revised standards issued by International Accounting Standards Board and International Financial Reporting Standards that are relevant to its operations and effective for the current financial reporting period.
Authorised and issued share capital Authorised share capital The company's authorised share capital of 1 000 000 000 shares remains unchanged during the year.
Share movements During the year 2 405 078 shares were issued at an average price of R7,95 per share to settle the obligation owed to the former shareholders of DigiCore Limited.
Unissued shares The remaining unissued ordinary shares are under the control of the directors in terms of a resolution of members passed at the last annual general meeting. This authority remains in force until the next annual general meeting.
Further details with respect to authorised and issued share capital are disclosed in note 15 to the group and company annual financial statements.
Borrowing limitations In terms of the articles of association of the company, the directors may exercise all the powers of the company to borrow money, as they consider appropriate.
Share incentive scheme The group operates a share investment scheme, where certain employees are awarded options that can be exercised over a four year period. The option strike price is set on the day the options are awarded to staff.
Refer to note 16 for detail about share based payments during the current year.
Dividends The dividends already declared and paid to shareholders during the year are as reflected in the attached statement of changes in equity.
Since the year end, a final ordinary dividend of 3 cents per share was declared on 21 September 2010 payable to the shareholders.
Directors' report
Directors The directors of the company during the year and to the date of this report are as follows:
Name Nationality Other information SR Aberdein South African Executive director D du Rand South African Executive director NA Gasa South African Independent non-executive director (chairman of the board; chairman of
remuneration committee) BJ Richards British Executive director – Resigned 26 November 2009 MD Rousseau South African Executive director SS Ntsaluba South African Independent non-executive director NH Vlok South African Executive director (CEO) FJ Schindehütte South African Executive director (CFO) BS Khuzwayo South African Independent non-executive director (chairman of the transformation committee) BC Esterhuyzen South African Executive director B Marx South African Independent non-executive director (chairman of the audit and risk committee) L Msengana-Ndlela South African Independent non-executive director – Appointed 5 August 2010
Indirectly Indirectly non- Directly beneficial beneficial Total
Directors' interest in shares as at 30 June 2010 SR Aberdein 1 140 000 16 855 708 191 500 18 187 208 D du Rand 20 000 1 907 000 126 670 2 053 670 MD Rousseau – 545 538 – 545 538 NH Vlok 14 247 089 17 055 735 3 005 350 34 308 174
15 407 089 36 363 981 3 323 520 55 094 590
Directors' interest in shares as at 30 June 2009 SR Aberdein 1 140 000 16 855 708 191 500 18 187 208 D du Rand 820 000 1 907 000 126 670 2 853 670 BJ Richards 550 273 – – 550 273 MD Rousseau 180 000 761 023 – 941 023 NH Vlok 14 046 689 17 055 735 3 005 350 34 107 774
16 736 962 36 579 466 3 323 520 56 639 948
Secretary The secretary of the company is DA Nieuwoudt of:
Business address Postal address DigiCore Building A PO Box 68270 9 Regency Drive Highveld Park Route 21 Corporate Park Centurion Irene, Centurion South Africa 0156 0169
after tax R'000
DigiCore Limited United Kingdom (2 553)
DigiCore Investments (Proprietary) Limited (1)
C-track SA (Proprietary) Limited 36 912
DigiCore Properties (Proprietary) Limited 2 572
DigiCore Financial Services (Proprietary) Limited (396)
DigiCore Technology (Proprietary) Limited –
DigiCore International (Proprietary) Limited –
DigiCore Cellular (Proprietary) Limited –
DigiCore Europe BV The Netherlands 7 543
C-track Benelux BV The Netherlands (1 524)
Sugar Creek Trading (Proprietary) Limited –
DigiCore Deutschland Gmbh Germany (296)
C-track France Sarl France (2 885)
C-track Belgium Bvba Belgium (929)
DigiCore Brands (Proprietary) Limited (1)
DigiCore International Holdings BV The Netherlands –
C-track UK Limited (previously MPS 2010 Limited) United Kingdom –
Details of the company's investment in subsidiaries are set out in note 6.
Auditors PKF (Pta) Inc. will continue in office in accordance with Section 270(2) of the Companies Act.
Directors' report (continued)
In terms of Section 270A of the Companies Act, the audit and risk committee reports as follows on its responsibilities performed as a sub-committee of the board.
Objective The objective of the committee is to assist the board in discharging its duties and responsibilities relating to financial reporting, auditing and the safeguarding of the company's assets.
Membership The audit and risk committee consists of three non-executive directors, who are, in the opinion of the board, considered to be independent.
Functioning The audit and risk committee met five times during the year and performed its functions and responsibilities as set out in its charter.
External audit The committee has satisfied itself through enquiry that the auditor of DigiCore Holdings Limited is independent as defined by the Act.
There is a formal procedure that governs the process whereby the auditor is considered for non-audit services and the engagement of the auditor for such work is reviewed and approved by the committee.
No complaints have been received by the audit and risk committee relating to accounting practices and internal audit of the company or to the content or auditing of the company’s financial statements, or to any related matter.
The committee has nominated, for approval at the annual general meeting, PKF (Pta) Inc as the external auditor for the 2011 financial year. Sanjay Ranchhoojee is assigned by the firm as the designated auditor of DigiCore Holdings Limited.
As required by the JSE listing requirements par 3.84(i), the audit and risk committee has satisfied itself that the group Chief Financial Officer has appropriate experience and expertise. In line with King III the committee has also satisfied itself as to the experience, expertise and resources of the finance function.
Annual financial statements The committee has, based on the information provided to it by management and the external auditors, evaluated whether the financial statements are a true and fair view in all material respects, and has subsequently thereafter recommended the financial statements for approval to the board. The board has subsequently approved the financial statements which will be open for discussion at the forthcoming annual general meeting.
Companies Act 2008 The committee is in the process of reviewing its statutory and corporate governance practices with a view to complying with the recommendations of the Companies Act, 2008 and King III.
Professor Ben Marx Chairman of the audit and risk committee
Group Company Figures in R’000 Notes 2010 2009 2010 2009
Assets Non-current assets
Property, plant and equipment 3 120 493 103 789 – – Goodwill 4 172 537 168 552 – – Intangible assets 5 36 344 – – – Investments in subsidiaries 6 – – 75 628 75 307 Investments in associates 7 2 493 1 062 2 139 708 Other financial assets 9 7 887 1 266 – – Deferred tax 11 6 332 7 142 28 84
346 086 281 811 77 795 76 099
Current assets
Inventories 12 86 533 104 011 – – Loans to group companies 8 – – 336 912 311 556 Other financial assets 9 304 105 – – Current tax receivable 6 205 12 299 1 190 2 055 Trade and other receivables 13 169 990 171 263 126 447 Cash and cash equivalents 14 49 323 57 406 – 2 161
312 355 345 084 338 228 316 219
Total assets 658 441 626 895 416 023 392 318
Equity and liabilities Equity Equity attributable to equity holders of parent
Share capital 15 82 585 63 863 135 762 117 835 Reserves (17 260) 28 118 4 484 19 324 Retained income 420 065 388 809 52 420 61 510
485 390 480 790 192 666 198 669 Non-controlling interest 12 356 11 086 – –
Total equity 497 746 491 876 192 666 198 669
Liabilities Non-current liabilities
Other financial liabilities 19 32 425 40 978 7 573 13 439 Finance lease obligation 20 3 138 2 799 – – Deferred tax 11 1 037 512 – –
36 600 44 289 7 573 13 439
Current liabilities
Loans from group companies 8 – – 179 915 159 815 Other financial liabilities 19 9 610 10 787 3 786 8 932 Current tax payable 4 525 13 693 – – Finance lease obligation 20 2 513 3 904 – – Trade and other payables 22 55 516 45 516 965 1 663 Provisions 21 14 919 7 330 100 300 Bank overdraft 14 37 012 9 500 31 018 9 500
124 095 90 730 215 784 180 210
Total liabilities 160 695 135 019 223 357 193 649
Total equity and liabilities 658 441 626 895 416 023 392 318
Net asset value per share (cents) 228,6 223,3 Net tangible asset value per share (cents) 132,7 145,0
Statements of financial position as at 30 June 2010
Revenue 24 530 534 576 234 7 100 6 500 Cost of sales, other income and operating expenses (459 845) (463 113) 1 026 (2 005)
Operating profit 25 70 689 113 121 8 126 4 495 Investment revenue 26 1 046 2 198 808 1 469 Income/(loss) from equity accounted investments 909 (497) 1 431 – Finance costs 27 (4 771) (3 682) (1 343) (929)
Profit before taxation 67 873 111 140 9 022 5 035 Taxation 28 (20 348) (34 946) (3 389) (4 668)
Profit for the year 47 525 76 194 5 633 367
Profit attributable to: Owners of the parent 46 255 74 741 5 633 367 Non-controlling interest 1 270 1 453 – –
47 525 76 194 5 633 367
Other comprehensive income Exchange differences on translating foreign operations 30 (30 538) (6 808) – –
Total comprehensive income for the year 16 987 69 386 5 633 367
Total comprehensive income for the year attributable to: Equity holders of the parent 15 717 67 933 5 633 367 Non-controlling interest 1 270 1 453 – –
16 987 69 386 5 633 367
Earnings per share (cents) Earnings per share 43 22,0 36,1 Diluted earnings per share 43 21,2 35,7
Statements of comprehensive income for the year ended 30 June 2010
Total Reserves for attributable Foreign own shares/ to equity Total currency share Share based holders of Non- Share Share share translation repurchase payment Total Retained the group/ controlling Total Figures in R'000 capital premium capital reserve reserve reserve reserves income company interest equity
Group Balance at 1 July 2008 214 44 421 44 635 15 602 38 241 5 200 59 043 351 446 455 124 9 632 464 756 Changes in equity Total comprehensive income for the year (6 808) (6 808) 74 741 67 933 1 453 69 386 Issue of shares 1 19 120 19 121 (19 121) (19 121) Purchase of own/treasury shares (772) (772) (772) (772) Employees' share option scheme: Proceeds of shares issued 879 879 (880) (880) (1) 1 Share options cancelled (4 116) (4 116) 4 116 Dividends (41 494) (41 494) (41 494)
Total changes 1 19 227 19 228 (6 808) (19 121) (4 996) (30 925) 37 363 25 666 1 454 27 120
Balance at 1 July 2009 215 63 648 63 863 8 794 19 120 204 28 118 388 809 480 790 11 086 491 876 Changes in equity Total comprehensive income for the year (30 538) (30 538) 46 255 15 717 1 270 16 987 Issue of shares 3 19 913 19 916 (19 120) (19 120) 796 796 Employees' share option scheme: Proceeds of shares issued (1 194) (1 194) 1 194 1 194 – – Fair value of options issued 3 086 3 086 3 086 3 086 Dividends (14 999) (14 999) (14 999)
Total changes 3 18 719 18 722 (30 538) (19 120) 4 280 (45 378) 31 256 (15 316) 1 270 (14 046)
Balance at 30 June 2010 218 82 367 82 585 (21 744) – 4 484 (17 260) 420 065 485 390 12 356 497 746
Note(s) 15 15 17&30 18
Company Balance at 1 July 2008 214 98 393 98 607 – 38 241 5 200 43 441 97 929 239 977 – 239 977 Changes in equity Total comprehensive income for the year 367 367 – 367 Issue of shares 1 19 120 19 121 (19 121) (19 121) Purchase of own/treasury shares (773) (773) (773) – (773) Employees’ share option scheme: Proceeds of shares issued 880 880 (880) (880) Share options cancelled (4 116) (4 116) 4 116 Dividends (40 902) (40 902) – (40 902)
Total changes 1 19 227 19 228 – (19 121) (4 996) (24 117) (36 419) (41 308) – (41 308)
Balance at 1 July 2009 215 117 620 117 835 19 120 204 19 324 61 510 198 669 – 198 669 Changes in equity Total comprehensive income for the year 5 633 5 633 – 5 633 Issue of shares 3 19 118 19 121 (19 120) (19 120) 1 – 1 Employees’ share option scheme: Proceeds of shares issued (1 194) (1 194) 1 194 1 194 Fair value of options issued 3 086 3 086 3 086 – 3 086 Dividends (14 723) (14 723) – (14 723)
Total changes 3 17 924 17 927 – (19 120) 4 280 (14 840) (9 090) (6 003) – (6 003)
Balance at 30 June 2010 218 135 544 135 762 – – 4 484 4 484 52 420 192 666 – 192 666
Note(s) 15 15 17&30 18
Statements of changes in equity for the year ended 30 June 2010
Total Reserves for attributable Foreign own shares/ to equity Total currency share Share based holders of Non- Share Share share translation repurchase payment Total Retained the group/ controlling Total Figures in R'000 capital premium capital reserve reserve reserve reserves income company interest equity
Group Balance at 1 July 2008 214 44 421 44 635 15 602 38 241 5 200 59 043 351 446 455 124 9 632 464 756 Changes in equity Total comprehensive income for the year (6 808) (6 808) 74 741 67 933 1 453 69 386 Issue of shares 1 19 120 19 121 (19 121) (19 121) Purchase of own/treasury shares (772) (772) (772) (772) Employees' share option scheme: Proceeds of shares issued 879 879 (880) (880) (1) 1 Share options cancelled (4 116) (4 116) 4 116 Dividends (41 494) (41 494) (41 494)
Total changes 1 19 227 19 228 (6 808) (19 121) (4 996) (30 925) 37 363 25 666 1 454 27 120
Balance at 1 July 2009 215 63 648 63 863 8 794 19 120 204 28 118 388 809 480 790 11 086 491 876 Changes in equity Total comprehensive income for the year (30 538) (30 538) 46 255 15 717 1 270 16 987 Issue of shares 3 19 913 19 916 (19 120) (19 120) 796 796 Employees' share option scheme: Proceeds of shares issued (1 194) (1 194) 1 194 1 194 – – Fair value of options issued 3 086 3 086 3 086 3 086 Dividends (14 999) (14 999) (14 999)
Total changes 3 18 719 18 722 (30 538) (19 120) 4 280 (45 378) 31 256 (15 316) 1 270 (14 046)
Balance at 30 June 2010 218 82 367 82 585 (21 744) – 4 484 (17 260) 420 065 485 390 12 356 497 746
Note(s) 15 15 17&30 18
Company Balance at 1 July 2008 214 98 393 98 607 – 38 241 5 200 43 441 97 929 239 977 – 239 977 Changes in equity Total comprehensive income for the year 367 367 – 367 Issue of shares 1 19 120 19 121 (19 121) (19 121) Purchase of own/treasury shares (773) (773) (773) – (773) Employees’ share option scheme: Proceeds of shares issued 880 880 (880) (880) Share options cancelled (4 116) (4 116) 4 116 Dividends (40 902) (40 902) – (40 902)
Total changes 1 19 227 19 228 – (19 121) (4 996) (24 117) (36 419) (41 308) – (41 308)
Balance at 1 July 2009 215 117 620 117 835 19 120 204 19 324 61 510 198 669 – 198 669 Changes in equity Total comprehensive income for the year 5 633 5 633 – 5 633 Issue of shares 3 19 118 19 121 (19 120) (19 120) 1 – 1 Employees’ share option scheme: Proceeds of shares issued (1 194) (1 194) 1 194 1 194 Fair value of options issued 3 086 3 086 3 086 – 3 086 Dividends (14 723) (14 723) – (14 723)
Total changes 3 17 924 17 927 – (19 120) 4 280 (14 840) (9 090) (6 003) – (6 003)
Balance at 30 June 2010 218 135 544 135 762 – – 4 484 4 484 52 420 192 666 – 192 666
Note(s) 15 15 17&30 18
Statements of cash flows for the year ended 30 June 2010
Cash flows from operating activities
Cash generated from operations 31 127 309 85 033 10 635 826 Interest income 1 046 2 198 164 1 089 Dividends received – – 644 1 465 Finance costs (4 771) (3 682) (1 343) (929) Tax paid 32 (22 105) (42 849) (2 468) (4 224)
Net cash from operating activities 101 479 40 700 7 632 (1 773)
Cash flows from investing activities
Purchase of property, plant and equipment 3 (56 244) (84 092) – – Sale of property, plant and equipment 3 5 370 4 659 – – Purchase of other intangible assets 5 (17 628) (16) – – Business combinations 35 (31 531) (275) – (275) Movement in investments (including subsidiaries and associates) 36 – – (320) – Loans to group companies advanced – – (5 256) (6 790) Sale of financial assets (6 820) – – – Purchase of other financial asset – (105) – – Investment in associate 909 – – –
Net cash from investing activities (105 944) (79 829) (5 576) (7 065)
Cash flows from financing activities
Reduction of share capital or buyback of shares 15 – (773) – – (Repayment of)/proceeds of other financial liabilities (9 730) 22 642 (11 012) (8 512) Finance lease payments (1 052) (1 746) – – Dividends paid 33 (14 999) (41 494) (14 723) (40 902) Other non-cash item 34 (5 349) – – –
Net cash from financing activities (31 130) (21 371) (25 735) (49 414)
Total cash and cash equivalents movement for the year (35 595) (60 500) (23 679) (58 252) Cash and cash equivalents at beginning of the year 47 906 108 406 (7 339) 50 913
Total cash and cash equivalents at end of the year 14 12 311 47 906 (31 018) (7 339)
1. Presentation of group and company annual financial statements The group and company annual financial statements have been prepared in accordance with International Financial Reporting Standards, its interpretations adopted by the International Accounting Standards Board (IASB), the JSE listing requirements, the AC500 South African Statements and interpretations of statements of GAAP and the Companies Act of South Africa, 1973. The group and company annual financial statements have been prepared on the historical cost basis, and incorporate the principal accounting policies set out below.
The financial statements are presented in South African Rand (ZAR), rounded to the nearest thousand. They are prepared on the historical cost basis other than financial instruments accounted for in terms of IAS 39.
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
These accounting policies are consistent with the previous period.
1.1 Consolidation Basis of consolidation The consolidated group and company annual financial statements incorporate the group and company annual financial statements of the company and all entities, including special purpose entities, which are controlled by the company.
Control exists when the company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
The results of subsidiaries are included in the consolidated group and company annual financial statements from the effective date of acquisition to the effective date of disposal.
Adjustments are made when necessary to the group and company annual financial statements of subsidiaries to bring their accounting policies in line with those of the group.
All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.
Non-controlling interests in the net assets of consolidated subsidiaries are identified and recognised separately from the group's interest therein and are recognised within equity. Losses of subsidiaries attributable to non-controlling interests are allocated to the non-controlling interest even if this results in a debit balance being recognised for non-controlling interest.
Transactions which result in changes in ownership levels, where the group has control of the subsidiary both before and after the transaction, are regarded as equity transactions and are recognised directly in the statement of changes in equity.
The difference between the fair value of consideration paid or received and the movement in non-controlling interest for such transactions is recognised in equity attributable to the owners of the parent.
Where a subsidiary is disposed of and a non-controlling shareholding is retained, the remaining investment is measured to fair value with the adjustment to fair value recognised in profit or loss as part of the gain or loss on disposal of the controlling interest.
Business combinations The group accounts for business combinations using the acquisition method of accounting. The cost of the business combination is measured as the aggregate of the fair values of assets given, liabilities incurred or assumed and equity instruments issued. Costs directly attributable to the business combination are expensed as incurred, except the costs to issue debt which are amortised as part of the effective interest and costs to issue equity which are included in equity.
Contingent consideration is included in the cost of the combination at fair value as at the date of acquisition. Subsequent changes to the assets, liabilities or equity which arise as a result of the contingent consideration are not affected against goodwill, unless they are valid measurement period adjustments.
The acquiree's identifiable assets, liabilities and contingent liabilities which meet the recognition conditions of IFRS 3 Business Combinations are recognised at their fair values at acquisition date, except for non-current assets (or disposal group) that are classified as held-for-sale in accordance with IFRS 5 Non-current Assets Held for Sale and discontinued operations, which are recognised at fair value less costs to sell.
Accounting policies for the year ended 30 June 2010
Accounting policies for the year ended 30 June 2010 (continued)
1. Presentation of group and company annual financial statements (continued) Contingent liabilities are only included in the identifiable assets and liabilities of the acquiree where there is a present obligation at acquisition date.
On acquisition, the group assesses the classification of the acquiree's assets and liabilities and reclassifies them where the classification is inappropriate for group purposes. This excludes lease agreements and insurance contracts, whose classification remains as per their inception date.
Non-controlling interest arising from a business combination is measured either at their share of the fair value of the assets and liabilities of the acquiree or at fair value. The treatment is not an accounting policy choice but is selected for each individual business combination, and disclosed in the note for business combinations.
In cases where the group held a non-controlling shareholding in the acquiree prior to obtaining control, that interest is measured to fair value as at acquisition date. The measurement to fair value is included in profit or loss for the year. Where the existing shareholding was classified as an available-for-sale financial asset, the cumulative fair value adjustments recognised previously to other comprehensive income and accumulated in equity are recognised in profit or loss as a reclassification adjustment.
Goodwill is determined as the consideration paid, plus the fair value of any shareholding held prior to obtaining control, plus non-controlling interest and less the fair value of the identifiable assets and liabilities of the acquiree.
Goodwill is not amortised but is tested on an annual basis for impairment. If goodwill is assessed to be impaired, that impairment is not subsequently reversed.
Goodwill arising on acquisition of foreign entities is considered an asset of the foreign entity. In such cases the goodwill is translated to the functional currency of the group at the end of each reporting period with the adjustment recognised in equity through to other comprehensive income.
Investment in associates An associate is an entity over which the group has significant influence and which is neither a subsidiary nor a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but does not have control or joint control over those policies.
Any goodwill on acquisition of an associate is included in the carrying amount of the investment; however, a gain on acquisition is recognised immediately in profit or loss.
Profits or losses on transactions between the group and an associate are eliminated to the extent of the group's interest therein.
When the group reduces its level of significant influence or loses significant influence, the group proportionately reclassifies the related items which were previously accumulated in equity through other comprehensive income to profit or loss as a reclassification adjustment. In such cases, if an investment remains, that investment is measured to fair value, with the fair value adjustment being recognised in profit or loss as part of the gain or loss on disposal.
1.2 Significant judgements and sources of estimation uncertainty In preparing the group and company annual financial statements, management is required to make estimates and assumptions that affect the amounts represented in the group and company annual financial statements and related disclosures. Use of available information and the application of judgement is inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the group and company annual financial statements. Significant judgements include:
Trade receivables and loans and receivables The group assesses its trade receivables and loans and receivables for impairment at the end of each reporting period. In determining whether an impairment loss should be recorded in profit or loss, the group makes judgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from a financial asset.
The impairment for trade receivables and loans and receivables is calculated on a portfolio basis, based on historical loss ratios, adjusted for national and industry-specific economic conditions and other indicators present at the reporting date that correlate with defaults on the portfolio. These annual loss ratios are applied to receivables balances in the portfolio and scaled to the estimated loss emergence period.
Allowance for slow moving, damaged and obsolete stock An allowance for stock to write stock down to the lower of cost or net realisable value has been made. Management have made estimates of the selling price and direct cost to sell on certain inventory items. The write down is included in the operating profit note.
1. Presentation of group and company annual financial statements (continued) Options granted Management used the Black Scholes model to determine the value of the options at issue date. Additional details regarding the estimates are included in the note 16 – Share based payments.
Fair value estimation The carrying value of trade payables and the carrying value less impairment provision of trade receivables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the group for similar financial instruments.
Impairment testing The recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value-in- use calculations and fair values less costs to sell. These calculations require the use of estimates and assumptions. It is reasonably possible that the assumption may change which may then impact our estimations and may then require a material adjustment to the carrying value of goodwill, tangible assets and intangible assets.
The group reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. In addition, goodwill is tested at least on an annual basis for impairment. Assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. If there are indications that impairment may have occurred, estimates are prepared of expected future cash flows for each group of assets. Expected future cash flows used to determine the value in use of goodwill and tangible assets are inherently uncertain and could materially change over time. They are significantly affected by a number of factors including production estimates, supply demand, together with economic factors such as exchange rates and inflation.
Provisions Provisions were raised and management determined an estimate based on the information available. Additional disclosure of these estimates of provisions are included in note 21 - Provisions.
Taxation Judgement is required in determining the provision for income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
The group recognises the net future tax benefit related to deferred income tax assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred income tax assets requires the group to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the group to realise the net deferred tax assets recorded at the end of the reporting period could be impacted.
Useful lives of property, plant and equipment The group reviews the estimated useful lives of property, plant and equipment at the end of each annual reporting period.
As described in accounting policy paragraph 1.3 below, the group reviews the estimated useful lives of property, plant and equipment at least at the end of each annual reporting period. During the financial year, the directors determined that the useful lives of certain items of motor vehicles, office equipment, computer software and IT equipment should be lengthened as a result of the assessment.
The financial effect of this re-assessment, assuming that assets are held until the end of their estimated useful lives, is to decrease the consolidated depreciation expense in the current year and in the next three financial years by the following amounts:
Motor Computer Office IT vehicles software equipment equipment Financial year R'000 R'000 R'000 R'000
2010 (2 214) (120) (67) (180) 2011 1 187 60 33 90 2012 859 60 24 90 2013 168
1. Presentation of group and company annual financial statements (continued) 1.3 Property, plant and equipment
The cost of an item of property, plant and equipment is recognised as an asset when: • it is probable that future economic benefits associated with the item will flow to the company; and • the cost of the item can be measured reliably.
Property, plant and equipment is initially measured at cost.
Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognised.
Property, plant and equipment are depreciated on the straight-line basis over their expected useful lives to their estimated residual value.
The useful lives of items of property, plant and equipment have been assessed as follows: Property, plant and equipment is carried at cost less accumulated depreciation and any impairment losses.
Item Average useful life
Land Indefinite Buildings 50 years Plant and machinery 3 years Furniture and fixtures 6 years Motor vehicles 4 to 5 years Office equipment 3 to 4 years IT equipment 3 years Computer software 2 years Leasehold improvements 5 years Rental stock 5 years
The residual value, useful life and depreciation method of each asset are reviewed at the end of each reporting period. If the expectations differ from previous estimates, the change is accounted for as a change in accounting estimate.
The depreciation charge for each period is recognised in profit or loss unless it is included in the carrying amount of another asset.
The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.
1.4 Goodwill All business combinations are accounted for by applying the purchase method. Goodwill represents the excess of the cost of acquiring a business together with the value of the non-controlling interest measured in terms of IFRS 3 over the group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary or associate recognised at the date of acquisition. Goodwill is stated at cost less any accumulated impairment losses.
In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate.
The excess of the company’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities together with the value of the non-controlling interest measured in terms of IFRS 3 over the cost of the business combination is immediately recognised in profit or loss.
Internally generated goodwill is not recognised as an asset and is expensed directly to profit and loss.
Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, 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 the liabilities assumed.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
1.5 Intangible assets An intangible asset is recognised when: • it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and • the cost of the asset can be measured reliably.
1. Presentation of group and company annual financial statements (continued) Intangible assets are initially recognised at cost.
Expenditure on research (or on the research phase of an internal project) is recognised as an expense when it is incurred.
An intangible asset arising from development (or from the development phase of an internal project) is recognised when: • it is technically feasible to complete the asset so that it will be available for use or sale; • there is an intention to complete and use or sell it; • there is an ability to use or sell it; • it will generate probable future economic benefits; • there are available technical, financial and other resources to complete the development and to use or sell the asset; and • the expenditure attributable to the asset during its development can be measured reliably.
Intangible assets are carried at cost less any accumulated amortisation and any impairment losses.
An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. Amortisation is not provided for these intangible assets, but they are tested for impairment annually and whenever there is an indication that the asset may be impaired. For all other intangible assets amortisation is provided on a straight-line basis over their useful life.
The amortisation period and the amortisation method for intangible assets are reviewed every period end.
Reassessing the useful life of an intangible asset with a finite useful life after it was classified as indefinite is an indicator that the asset may be impaired. As a result the asset is tested for impairment and the remaining carrying amount is amortised over its useful life.
Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance are not recognised as intangible assets.
Amortisation is provided to write down the intangible assets, on a straight-line basis, to their residual values as follows:
Item Useful life
Patents, trademarks and other rights Indefinite Intangible assets under development 5 years
1.6 Investments in subsidiaries Company group and company annual financial statements In the company’s separate group and company annual financial statements, investments in subsidiaries are carried at cost less any accumulated impairment.
The cost of an investment in a subsidiary is the aggregate of the fair value at the date of exchange of, assets given, liabilities incurred or assumed, and equity instruments issued by the company.
An adjustment to the cost of a business combination contingent on future events is included in the cost of the combination if the adjustment is probable and can be measured reliably.
1.7 Investments in associates Company group and company annual financial statements An investment in an associate is carried at cost less any accumulated impairment.
1.8 Financial instruments Initial recognition and measurement Financial instruments are recognised initially when the group becomes a party to the contractual provisions of the instruments.
Financial assets All financial assets are recognised and derecognised on trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.
1. Presentation of group and company annual financial statements (continued) Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (FVTPL), ‘held-to-maturity’ investments, ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. The group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement.
Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset at amortised cost and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or where appropriate a shorter period, to the net carrying amount on initial recognition.
Income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL.
Subsequent measurement Financial instruments at fair value through profit or loss are subsequently measured at fair value, with gains and losses arising from changes in fair value being included in profit or loss for the period.
Net gains or losses on the financial instruments at fair value through profit or loss exclude dividends and interest. Dividend income is recognised in profit or loss as part of other income when the group's right to receive payment is established.
Loans and receivables are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses.
Gains and losses arising from changes in fair value of available-for-sale financial assets are recognised in other comprehensive income and accumulated in equity until the asset is disposed of or determined to be impaired. Interest on available-for-sale financial assets calculated using the effective interest method is recognised in profit or loss as part of other income. Dividends received on available-for-sale equity instruments are recognised in profit or loss as part of other income when the group's right to receive payment is established.
Changes in fair value of available-for-sale financial assets denominated in a foreign currency are analysed between translation differences resulting from changes in amortised cost and other changes in the carrying amount. Translation differences on monetary items are recognised in profit or loss, while translation differences on non-monetary items are recognised in other comprehensive income and accumulated in equity.
Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.
For financial assets, including finance lease receivables, objective evidence of impairment could include: • significant financial difficulty of the issuer or counterparty; or • default or delinquency in interest or principal payments; or • it becoming probable that the borrower will enter bankruptcy or financial re-organisation.
For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables.
For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectable, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.
1. Presentation of group and company annual financial statements (continued) When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period.
With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. At each reporting date the group assesses all financial assets, other than those at fair value through profit or loss, to determine whether there is objective evidence that a financial asset or group of financial assets has been impaired.
Loans to (from) group companies These include loans to and from holding companies, fellow subsidiaries, subsidiaries and associates and are recognised initially at fair value plus direct transaction costs.
Loans to group companies are classified as loans and receivables.
Loans from group companies are classified as financial liabilities measured at amortised cost.
Trade and other receivables Trade receivables are measured at initial recognition at fair value plus transaction costs and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.
The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in profit or loss within operating expenses. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in profit or loss.
Trade and other receivables are classified as loans and receivables.
Trade and other payables Trade payables are initially measured at fair value less transaction costs, and are subsequently measured at amortised cost, using the effective interest rate method. Trade payables are classified as other financial liabilities.
Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at fair value.
Bank overdraft and borrowings Bank overdrafts and borrowings are initially measured at fair value less transaction costs and are subsequently measured at amortised cost using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the group’s accounting policy for borrowing costs.
Derecognition of financial assets The group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the group retains substantially all the risks and rewards of ownership of a transferred financial asset, the group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
Financial liabilities issued by the group Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.
1. Presentation of group and company annual financial statements (continued) Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the group are recognised at the proceeds received, net of direct issue costs.
Financial liabilities Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities'.
Other financial liabilities Other financial liabilities, including borrowings and trade and other payables, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
De-recognition of financial liabilities The group derecognises financial liabilities when, and only when, the group’s obligations are discharged, cancelled or they expire.
1.9 Tax Current tax assets and liabilities Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset.
Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible.
Deferred tax assets and liabilities A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from the initial recognition of an asset or liability in a transaction other than a business combination which at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). Deferred tax is calculated using the comprehensive liability method.
A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised. A deferred tax asset is not recognised when it arises from the initial recognition of an asset or liability in a transaction which, at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the group intends to settle its current tax assets and liabilities on a net basis.
Deferred tax assets and liabilities are measured 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 (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
1. Presentation of group and company annual financial statements (continued) Tax expenses Current and deferred taxes are recognised as income or an expense and included in profit or loss for the period, except to the extent that the tax arises from: • a transaction or event which is recognised, in the same or a different period, to other comprehensive income; • a transaction or event which is recognised, in the same or a different period, directly in equity; or • a business combination.
Current tax and deferred taxes are charged or credited to other comprehensive income if the tax relates to items that are credited or charged, in the same or a different period, to other comprehensive income.
Current tax and deferred taxes are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly in equity.
1.10 Leases A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.
Assets subject to a finance lease are depreciated over the shorter of the lease term and the asset's estimated useful life.
Finance leases – lessee Finance leases are recognised as assets and liabilities in the statements of financial position at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statements of financial position as a finance lease obligation.
The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease.
The lease payments are apportioned between the finance charge and reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of 10% pa on the remaining balance of the liability.
Operating leases – lessor Operating lease income is recognised as income on a straight-line basis over the lease term.
Initial direct costs incurred in negotiating and arranging operating leases are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as the lease income.
Income for leases is disclosed under revenue in profit or loss.
Operating leases – lessee Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between the amounts recognised as an expense and the contractual payments are recognised as an operating lease asset. This liability is not discounted.
Any contingent rents are expensed in the period they are incurred.
1.11 Inventories Inventories are measured at the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
The cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects is assigned using specific identification of the individual costs.
The cost of inventories is assigned using the weighted average cost formula. The same cost formula is used for all inventories having a similar nature and use to the entity.
1. Presentation of group and company annual financial statements (continued) When inventories are sold, the carrying amount of those inventories are recognised as an expense in the period in which the related revenue is recognised. The amount of any write down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write down or loss occurs. The amount of any reversal of any write down of inventories, arising from an increase in net realisable value, are recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. Any reversal of a previous write down to inventory is limited such that it cannot increase the value of inventory above the carrying amount recognised before the write down was initially recognised.
1.12 Impairment of assets The group assesses at each end of the reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the group estimates the recoverable amount of the asset.
Irrespective of whether there is any indication of impairment, the group also: • tests intangible assets with an indefinite useful life or intangible assets not yet available for use for impairment at least annually
by comparing its carrying amount with its recoverable amount. This impairment test is performed during the annual period and at the same time every period; and
• tests goodwill acquired in a business combination for impairment at least annually.
If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined.
The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use.
If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss.
An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in profit or loss. Any impairment loss of a revalued asset is treated as a revaluation decrease.
Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination.
An impairment loss is recognised for cash-generating units if the recoverable amount of the unit is less than the carrying amount of the units. The impairment loss is allocated to reduce the carrying amount of the assets of the unit in the following order: • first, to reduce the carrying amount of any goodwill allocated to the cash-generating 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 entity assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated.
The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods.
A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other than goodwill is recognised immediately in profit or loss. Any reversal of an impairment loss of a revalued asset is treated as a revaluation increase.
1.13 Share capital and equity An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
1.14 Share based payments Goods or services received or acquired in a share based payment transaction are recognised when the goods or the services are received. A corresponding increase in equity is recognised if the goods or services were received in an equity-settled share based payment transaction or a liability if the goods or services were acquired in a cash-settled share based payment transaction.
When the goods or services received or acquired in a share based payment transaction do not qualify for recognition as assets, they are recognised as expenses.
For equity-settled share based payment transactions the goods or services received and the corresponding increase in equity are measured, directly, at the fair value of the goods or services received provided that the fair value can be measured reliably.
If the fair value of the goods or services received cannot be estimated reliably, their value and the corresponding increase in equity are measured by reference to the fair value of the equity instruments granted.
1. Presentation of group and company annual financial statements (continued) For cash-settled share based payment transactions, the goods or services acquired and the liability incurred are measured at the fair value of the liability. Until the liability is settled, the fair value of the liability is re-measured at each reporting date and at the date of settlement, with any changes in fair value recognised in profit or loss for the period.
If the share based payments granted do not vest until the counterparty completes a specified period of service, the group accounts for those services as they are rendered by the counterparty during the vesting period (or on a straight-line basis over the vesting period).
If the share based payments vest immediately the services received are recognised in full.
For share based payment transactions in which the terms of the arrangement provide either the entity or the counterparty with the choice of whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments, the components of that transaction are recorded as a cash-settled share based payment transaction if, and to the extent that, a liability to settle in cash or other assets has been incurred, or as an equity-settled share based payment transaction if, and to the extent that, no such liability has been incurred.
At each year end, management reassesses the number of options expected to ultimately vest and makes the adjustment to the equity balance and profit and loss as is necessary to account for this change in estimate.
Non-market related performance conditions are only taken into account in the subsequent measurement of cash-settled options, up to and including settlement date.
1.15 Employee benefits Short-term employee benefits The cost of short-term employee benefits (those payable within 12 months after the service is rendered, such as paid vacation leave and sick leave, bonuses, and non-monetary benefits such as medical care) are recognised in the period in which the service is rendered and are not discounted.
The expected cost of compensated absences is recognised as an expense as the employees render services that increase their entitlement or, in the case of non-accumulating absences, when the absence occurs.
The expected cost of profit sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance.
1.16 Provisions and contingencies Provisions are recognised when: • the group has a present obligation as a result of a past event; • it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and • a reliable estimate can be made of the obligation.
The amount of a provision is the present value of the expenditure expected to be required to settle the obligation discounted at an appropriate discount rate.
Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset. The amount recognised for the reimbursement shall not exceed the amount of the provision.
Provisions are not recognised for future operating losses.
If an entity has a contract that is onerous, the present obligation under the contract shall be recognised and measured as a provision.
A constructive obligation to restructure arises only when an entity: • has a detailed formal plan for the restructuring, identifying at least: – the business or part of a business concerned; – the principal locations affected; – the location, function, and approximate number of employees who will be compensated for terminating their services; – the expenditures that will be undertaken; and – when the plan will be implemented; and • has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or
announcing its main features to those affected by it.
1. Presentation of group and company annual financial statements (continued) After their initial recognition contingent liabilities recognised in business combinations that are recognised separately are subsequently measured at the higher of: • the amount that would be recognised as a provision; and • the amount initially recognised less cumulative amortisation.
Contingent assets and contingent liabilities are not recognised.
1.17 Revenue Revenue from the sale of goods is recognised when all the following conditions have been satisfied: • the group has transferred to the buyer the significant risks and rewards of ownership of the goods; • the group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective
control over the goods sold; • the amount of revenue can be measured reliably; • it is probable that the economic benefits associated with the transaction will flow to the group; and • the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods and services provided in the normal course of business, net of trade discounts and volume rebates, and value added tax.
Dividend revenue from investments is recognised when the shareholder’s right to receive payment has been established (provided that it is probable that the economic benefits will flow to the group and the amount of revenue can be measured reliably). Interest is recognised in profit or loss, using the effective interest rate method.
Service fees included in the price of the product are recognised as revenue over the period during which the service is performed.
1.18 Cost of sales When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write down or loss occurs. The amount of any reversal of any write down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.
The related cost of providing services recognised as revenue in the current period is included in cost of sales.
Contract costs comprise: • costs that relate directly to the specific contract; • costs that are attributable to contract activity in general and can be allocated to the contract; and • such other costs as are specifically chargeable to the customer under the terms of the contract.
1.19 Borrowing costs All borrowing costs are recognised as an expense in the period in which they are incurred.
1.20 Translation of foreign currencies Functional and presentation currency Items included in the group and company annual financial statements of each of the group entities are measured using the currency of the primary economic environment in which the entity operates (functional currency).
The consolidated group and company annual financial statements are presented in Rand which is the group functional and presentation currency.
Foreign currency transactions A foreign currency transaction is recorded, on initial recognition in Rand, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.
At the end of the reporting period: • foreign currency monetary items are translated using the closing rate; • non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at
the date of the transaction; and • non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date
when the fair value was determined.
1. Presentation of group and company annual financial statements (continued) Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous group and company annual financial statements are recognised in profit or loss in the period in which they arise.
When a gain or loss on a non-monetary item is recognised to other comprehensive income and accumulated in equity, any exchange component of that gain or loss is recognised to other comprehensive income and accumulated in equity. When a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss is recognised in profit or loss.
Cash flows arising from transactions in a foreign currency are recorded in Rand by applying to the foreign currency amount the exchange rate between the Rand and the foreign currency at the date of the cash flow.
Investments in subsidiaries and associates The results and financial position of a foreign operation are translated into the functional currency using the following procedures: • assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that
statement of financial position; • income and expenses for each item of profit or loss are translated at exchange rates at the dates of the transactions; and • all resulting exchange differences are recognised to other comprehensive income and accumulated as a separate component
of equity.
Exchange differences arising on a monetary item that forms part of a net investment in a foreign operation are recognised initially to other comprehensive income and accumulated in the translation reserve. They are recognised in profit or loss as a reclassification adjustment through to other comprehensive income on disposal of net investment.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation are treated as assets and liabilities of the foreign operation.
The cash flows of a foreign subsidiary are translated at the exchange rates between the functional currency and the foreign currency at the dates of the cash flows.
On the disposal of a foreign operation (i.e. a disposal of the group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, or loss of significant influence over an associate that includes a foreign operation), all of the accumulated exchange differences in respect of that operation attributable to the group are reclassified to profit or loss. Any exchange differences that have previously been attributed to non-controlling interests are derecognised, but they are not reclassified to profit or loss.
In the case of a partial disposal (i.e. no loss of control) of a subsidiary that includes a foreign operation, the proportionate share of accumulated exchange differences is re-attributed to non-controlling interests and is not recognised in profit or loss. For all other partial disposals (i.e. of associates or jointly controlled entities not involving a change of accounting basis), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.
1.21 Comparative figures When required, the group’s comparative figures have been adjusted to conform with the changes in presentation & disclosure in the current reporting period. Any such changes are disclosed in the applicable note to the financial statements.
Notes to the group and company annual financial statements for the year ended 30 June 2010
2. New standards and interpretations Standards and interpretations effective and adopted in the current year In the current year, the group has adopted the following standards and interpretations that are effective for the current financial year and that are relevant to its operations:
IAS 1 (Revised) Presentation of Financial Statements The main revisions to IAS 1: • Require the presentation of non-owner changes in equity either in a single statement of comprehensive income or in an income
statement and statement of comprehensive income. • Require the presentation of a statement of financial position at the beginning of the earliest comparative period whenever a
retrospective adjustment is made. This requirement includes related notes. • Require the disclosure of income tax and reclassification adjustments relating to each component of other comprehensive income. The
disclosures may be presented on the face of the statement of comprehensive income or in the notes. • Allow dividend presentations to be made either in the statement of changes in equity or in the notes only. • Have changed the titles to some of the financial statement components, where the ‘balance sheet’ becomes the ‘statement of financial
position’ and the ‘cash flow statement’ becomes the ‘statement of cash flows.’ These new titles will be used in International Financial Reporting Standards, but are not mandatory for use in financial statements.
The effective date of the standard is for years beginning on or after 1 January 2009. The group has adopted the standard for the first time in the 2010 group and company annual financial statements. The adoption of this standard has not had a material impact on the results of the company, but has resulted in more disclosure than would have previously been provided in the group and company annual financial statements.
IFRS 8 Operating Segments IFRS 8 replaces IAS 14 Segment Reporting. The new standard requires a &#

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DigiCore annual financial statements - ShareData