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Integrated Report 2016
ANNUAL FINANCIAL STATEMENTS
(continued)
MPHO EA BOPHELO TRUST
The Mpho ea Bophelo Trust is an entity incorporated for the purpose of representing Adcock Ingram employees in the Group’s BEE transaction
and is consolidated in accordance with IFRS 10. The activities of this entity are conducted in accordance with the Group’s specific business
needs in that the Group obtains benefits from this operation. The Group retains the majority of the residual or ownership risks and rewards
related to this entity or its assets and it was therefore considered that the Group controls this entity.
CONSOLIDATION OF ENTITIES INWHICH THE GROUP HOLDS LESS THAN MAJORITY OF VOTING RIGHTS
The Group considers that it controls Menarini SA Proprietary Limited and Novartis Ophthalmics Proprietary Limited even though it owns less
than 50% of the voting rights as it controls the daily management and decision making of these entities.
CARRYING VALUE OF GOODWILL, PROPERTY, PLANT AND EQUIPMENT, AND INTANGIBLE ASSETS
Indefinite life intangible assets are tested for impairment bi-annually, while property, plant and equipment, goodwill and finite life intangible
assets are tested at least annually or when there is an indicator of impairment. The calculation of the recoverable amount requires the use of
estimates and assumptions concerning the future cash flows which are inherently uncertain and could change over time. In addition, changes
in economic factors such as discount rates could also impact this calculation.
RESIDUAL VALUES AND USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT, AND INTANGIBLE ASSETS
Residual values and useful lives of property, plant and equipment, and intangible assets are assessed on an annual basis. Estimates and
judgements in this regard are based on historical experience and expectations of the manner in which assets are to be used, together with
expected proceeds likely to be realised when assets are disposed of at the end of their useful lives. Such expectations could change over time
and therefore impact both depreciation and amortisation charges and carrying values of property, plant and equipment, and intangible assets
in the future.
FAIR VALUE OF BEE SHARE ALLOCATIONS
In calculating the amount to be expensed as a share-based payment, the Group is required to calculate the fair value of the equity instruments
granted to the BEE participants in terms of the staff empowerment transactions.
SHARE-BASED PAYMENTS
The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date
at which they are granted. Estimating fair value requires determining the most appropriate valuation model for a grant of equity instruments,
which is dependent on the terms and conditions of the grant. This also requires determining the most appropriate inputs to the valuation
model including the expected life of the option, volatility and dividend yield and making assumptions about them.
Cash-settled share options granted to employees for services rendered or to be rendered are raised as a liability and recognised in profit or loss
over the vesting period. The liability is remeasured to its fair value annually until settled and any changes in value are recognised in profit or
loss. Fair value is measured using a Black-Scholes option pricing model.
DEFERRED TAX ASSETS
Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which
the losses can be utilised. Management judgement is required to determine the amount of deferred tax assets that can be recognised, based
upon the likely timing and level of future taxable profits.
PENSION AND OTHER POST-EMPLOYMENT BENEFITS
The cost of defined benefit pension plans and post-employment medical benefits is determined using actuarial valuations. The actuarial
valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and
future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty.
PROVISIONS
The establishment and review of provisions requires significant judgement by management as to whether or not a reliable estimate can be
made of the amount of the obligation. Best estimates, being the amount that the Group would rationally pay to settle the obligation, are
recognised as provisions at the reporting date.
ANNEXURE I – ACCOUNTING POLICIES
CONTINUED