Adcock Ingram Integrated Report 2018

141 ADCOCK INGRAM  Integrated Report 2018 Annexure I – Accounting policies continued 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. POST-EMPLOYMENT BENEFITS Post-employment medical benefits are 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. STRUCTURED ENTITIES Owner-driver companies Various owner-driver companies exist in the Group. These entities were incorporated to support the distribution network of the Group and are consolidated into the Group in accordance IFRS 10. Based on the contractual terms, the activities of these entities are being conducted on behalf of the Group according to its specific business needs so that the Group obtains benefits from these entities’operations. In addition, it was assessed that the Group controls each of these entities as there are insufficient assets within these entities to allow each entity to finance its own activities without the support of the Group. Ad-Izinyosi (RF) Proprietary Limited and AdBEE (RF) Limited The Group restructured their BEE vehicle, which was performed in line with the circular dated 28 May 2015. This has led to the formation of Ad-Izinyosi (RF) Proprietary Limited and AdBEE (RF) Limited, a company with instruments listed on the JSE. Adcock Ingram considered the relevant activities of both entities, the Company’s involvement in facilitating the restructuring, the Company’s protective rights in respect of the companies acting in accordance with their Memorandum of Incorporation; and the Company’s lack of future financial exposure to the overall scheme. The conclusions were that in the Company’s judgement the Group does not have power over the relevant activities of these two entities, nor benefits from the variable returns that would emanate from such entities. These entities are therefore not consolidated into the Group. 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 in which the Group holds less than the 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. STANDARDS AND INTERPRETATIONS ISSUED THAT ARE NOT YET EFFECTIVE A number of new standards, amendments to standards and interpretations that are applicable to the Group with an effective date after the date of these financial statements, have not been applied in preparing these consolidated financial statements. The Group intends to adopt these standards when they become effective. IAS 19: PLAN AMENDMENT, CURTAILMENT OR SETTLEMENT - AMENDMENTS The amendments to IAS 19 Employee Benefits address the accounting when a plan amendment, curtailment or settlement occurs during a reporting period. The amendment, effective from 1 July 2019 and is not expected to have a significant impact on the Group’s disclosure. IFRS 9: FINANCIAL INSTRUMENTS – RECOGNITION AND MEASUREMENT IFRS 9 brings together all the aspects of accounting for financial instruments: classification, measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. The Group will apply the new rules retrospectively from 1 July 2018, with the practical methods permitted under the standard using the modified retrospective approach. Comparatives for 2018 will not be restated in the 2019 financial statements.