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Integrated Report 2016
ANNUAL FINANCIAL STATEMENTS
(continued)
SIX
THREE
ONE
FOUR
TWO
RESEARCH AND DEVELOPMENT COSTS
Research costs, being costs from the investigation undertaken with the prospect of gaining new knowledge and understanding, are recognised
in profit or loss as they are incurred.
Development costs arise on the application of research findings to a plan or design for the production of new or substantially improved
materials, products or services, before the start of commercial production.
Development costs are only capitalised when the Group can demonstrate the technical feasibility of completing the project, its intention and
ability to complete the project and use or sell the materials, products or services flowing from the project, how the project will generate future
economic benefits, the availability of sufficient resources and the ability to measure reliably the expenditure during development. Otherwise
development costs are recognised in profit or loss.
During the period of development, the asset is tested annually for impairment. Following the initial recognition of the development costs,
the asset is carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation begins when development is
complete and the asset is available for use. The capitalised development costs are amortised over the useful life of the intangible asset.
IMPAIRMENT OF NON-FINANCIAL ASSETS
The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If such an indication exists, or
when impairment testing is required, as is the case with goodwill and intangible assets with indefinite useful lives, the Group estimates the
recoverable amount. An asset’s recoverable amount is the higher of the fair value less costs of disposal and its value in use. The recoverable
amount is determined for individual assets, unless the asset does not generate cash inflows that are largely independent of those from other
assets or group of assets. When the carrying value exceeds the recoverable amount, the asset is considered impaired and is written down to
the recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent
market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used.
The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the
Group’s cash-generating units to which the individual assets are allocated. These budgets and forecast calculations generally cover a period
of 10 years. Ten years are used in instances where the Group believes that assets have a value in use of 10 or more years. For longer periods,
a long-term growth rate is calculated and applied to project future cash flows after the 10th year.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised
impairment losses may no longer exist or may have decreased. If such an indication exists, the Group estimates the asset’s or cash-generating
unit’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to
determine the asset’s recoverable amount since the last impairment loss was recognised.
The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that
would have been determined, net of depreciation or amortisation, had no impairment loss been recognised for the asset in prior years. Such
reversal is recognised in profit or loss.
The following assets have specific characteristics for impairment testing:
GOODWILL
Goodwill is tested for impairment
•
annually at the reporting date; and
•
when circumstances indicate that the carrying value may be impaired.
Impairment losses relating to goodwill cannot be reversed in future periods.
INTANGIBLE ASSETS
Intangible assets with indefinite useful lives are tested for impairment
•
biannually as at 31 December and 30 June; and
•
when circumstances indicate that the carrying value may be impaired on an individual basis or at the cash-generating unit level.