Mvelaphanda - Financial review - Accounting policies

Annual Report 2009

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		Performance overview Financial highlights Group portfolio Sustainability highlights Path to value unlocking Ten-year financial review Ten-year performance indicators Board of directors Board of directors Chairman's review Introduction Economic environment Financial results Board of directors Black-economic empowerment Governance Chief executive officer's review Introduction Strategic investments Mvelaserve Shareholders and dividend Strategy and prospects Current challenges Prospects Financial review Introduction Financial reporting controls Financial performance Cash flow Financial position Capital structure Intrinsic net asset value Cash distributions and dividends Financial returns Business review Strategic investments Mvelaserve Sustainability report Sustainability report Financials Corporate governance Independent auditors’ report Directors’ responsibility statement Statement of compliance by the company secretary Directors’ report Accounting policies Segmental information Financial statements Analysis of ordinary shareholders Principal subsidiaries Principal investments, associates and joint ventures Administration Information to shareholders Notice to shareholders Form of proxy Glossary Administration

Financials		1 2 3 4 5 6

Accounting policies

1.		GENERAL INFORMATION Mvelaphanda Group Limited is the holding company of the Mvelaphanda Group (“the Group”) and is incorporated in the Republic of South Africa. The financial statements incorporate the following principal accounting policies, which are, except where otherwise disclosed, consistent with those applied in the previous year.
2.		STATEMENT OF COMPLIANCE The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), the JSE Listings Requirements and the South African Companies Act of 1973, as amended.
3.		BASIS OF PREPARATION The financial statements are prepared on the historical-cost convention, modified by the restatement of financial instruments to fair value where applicable.
4.		PRINCIPAL ACCOUNTING POLICIES
4.1		Basis of consolidation
4.1.1		Investments in subsidiaries The Group financial statements incorporate the assets, liabilities and results of the operations of the Company and its subsidiaries. Subsidiaries are all entities, including special-purpose entities, controlled by the Group. Control exists when the Group, directly or indirectly, has an interest of more than one half of the voting rights or otherwise 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 acquired and disposed of during a financial year are included from the date on which control is transferred to the Group and deconsolidated from the date that control ceases. The assets and liabilities of the companies acquired are assessed and included in the balance sheet at their estimated fair values to the Group at acquisition date. Where the fair value of the consideration paid exceeds the fair value of the identifiable assets acquired and liabilities and contingent liabilities assumed, the difference is recorded as goodwill and is accounted for in terms of accounting policy note 4.2. Where the fair value of the identifiable assets acquired and liabilities and contingent liabilities assumed exceed the fair value of the consideration given, the excess is recognised immediately in the income statement. The Group’s Share Incentive Scheme is included in the consolidated financial statements as a subsidiary. The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the income statement. Purchases from minority interests result in goodwill, being where the consideration paid exceeds the relevant share acquired of the carrying value of net assets of the subsidiary. Accounting policies of subsidiaries have been changed, where necessary, to ensure consistency with the policies adopted by the Group.
4.1.2		Investments in associates An associate is an entity over whose financial and operating policies the Group has the ability to exercise significant influence, but not control, and is neither a subsidiary nor a jointly controlled entity of the Group. Investments in associates are accounted for using the equity method of accounting, except for investments that are managed and whose performances are evaluated on a fair value basis in accordance with the Group’s investment strategy, in which case it is accounted for as designated as at fair value through profit and loss in accordance with IAS 39 of the International Financial Reporting Standards, as per accounting policy note 4.14.2. Equity accounting involves recognising, in the income statement, the Group’s share of the associates’ earnings for the year. The results of associate companies acquired and disposed of during the year are included from the effective dates of acquisition to the effective dates of disposal. Where the fair value of the consideration paid exceeds the fair value of the identifiable assets acquired and liabilities and contingent liabilities assumed, the difference is recorded as goodwill and is included as part of the carrying value of the investment in associates. The Group’s interest in associates is carried in the balance sheet at an amount that reflects its share of the net assets of the associate and goodwill identified on acquisition of the associate, net of accumulated impairment loss. The total carrying amount of associates is evaluated annually for impairment. The most recent financial information of associates is used. Adjustments are made to the associates’ financial results for material transactions and events in the intervening period. Losses of associates in excess of the Group’s interest are not recognised unless there is a binding obligation to contribute to the losses.
4.1.3		Investments in jointly controlled entities Jointly controlled entities are those entities over which the Group exercises joint control in terms of a contractual agreement. Investments in jointly controlled entities are accounted for by way of the proportionate consolidation method whereby the Group’s proportional share of the assets, liabilities, revenue and expenses of jointly controlled entities are combined on a line-by-line basis, with similar items in the financial statements of the Group. The results of jointly controlled entities are included from the effective dates when joint control commences to the effective dates when joint control ceases. Any goodwill arising on the acquisition of the Group’s interest in a jointly controlled entity is accounted for in terms of accounting policy note 4.2.
4.1.4		Transactions eliminated on consolidation Intra-group balances and transactions, and unrealised gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains resulting from the transactions with associates and jointly controlled entities are eliminated to the extent of the Group’s interest in the entity. Unrealised gains resulting from transactions with associates are eliminated against the investment in associates. Unrealised losses on transactions with associates are eliminated in the same way as unrealised gains, except that they are only eliminated to the extent that there is no evidence of impairment.
4.2		Goodwill Goodwill represents amounts arising on acquisition of subsidiaries and joint ventures. All business combinations are accounted for by applying the purchase method. Goodwill arising from a business combination for which the agreement date is prior to 31 March 2004, is included in the balance sheet at its deemed cost, being its cost less accumulated amortisation up to 31 March 2004, as previously recorded under SA GAAP. Goodwill arising from a business combination, for which the agreement date is on or after 31 Ma/rch 2004, is not amortised but is carried at cost less accumulated impairment losses. Goodwill is tested annually for impairment. For the purpose of impairment testing, goodwill is allocated to the cash-generating unit(s) expected to benefit from the business combination in which the goodwill arose, identified according to operating segments. An impairment loss is recognised if the carrying amount of the cash-generating unit, including the associated goodwill, exceeds its recoverable amount. On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
4.3		Intangible assets Intangible assets, other than goodwill (refer to policy note 4.2) are recognised if it is probable that future economic benefits will flow to the entity from the intangible assets and the costs of the intangible assets can be reliably measured.
4.3.1		Trademarks Internally generated trademarks are classified as indefinite useful life intangible assets as they are inherent to the continuous operation of the businesses to which they relate, and are stated at cost less accumulated impairment losses. Trademarks are tested for impairment on an annual basis.
4.3.2		Computer software Direct software development costs that enhance the benefits of computer software programs and are clearly associated with an identifiable and unique software system, which will be controlled by the Group and has a probable benefit exceeding one year, are recognised as intangible assets. Computer software, including software development costs recognised as intangible assets, is amortised on the straight-line basis over the expected useful lives of the assets, being between three and five years. Capitalised computer software is carried at cost less accumulated amortisation and impairment losses. Computer software is tested annually for impairment or changes in estimated future benefits.
4.3.3		Manufacturing and distribution rights Acquired manufacturing and distribution rights are classified as indefinite useful life intangible assets as they are inherent to the continuous operation of the businesses to which they relate, and are stated at cost less accumulated impairment losses. Manufacturing and distribution rights are tested annually for impairment.

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