Qantas 2006 Annual Report Download - page 79

77
Qantas Annual Report 2006
Notes to the Financial Statements
for the year ended 30 June 2006
(J) INCOME TAX
Income tax on the Income Statement for the periods presented comprises
current and deferred tax. Income tax is recognised in the Income Statement
except to the extent that it relates to items recognised directly in equity, in
which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using
tax rates enacted or substantially enacted at balance date and any adjustment
to tax payable with respect to previous years.
Deferred tax is provided using the Balance Sheet liability method, providing
for temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
taxation purposes. The following temporary differences are not provided for:
the initial recognition of assets or liabilities that affect neither accounting
nor taxable profit, and differences relating to investments in subsidiaries to
the extent that they will probably not reverse in the foreseeable future. The
amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at balance date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
Qantas provides for income tax in both Australia and overseas jurisdictions
where a liability exists.
(K) TAX CONSOLIDATION
Qantas is the head entity in the tax consolidated group comprising Qantas
and all of its Australian wholly-owned entities and partnerships.1 The
implementation date of the tax consolidations system for the tax
consolidated group was 1 July 2003.
The current and deferred tax amounts for the tax consolidated group are
allocated among the entities in the group using a group allocation method.
Deferred tax assets and deferred tax liabilities are measured by reference to
the carrying amounts of the assets and liabilities in the Balance Sheet of
Qantas and their tax values applying under tax consolidation.
Any current tax liabilities/assets and deferred tax assets arising from
unused tax losses assumed by the head entity from the controlled entities
in the tax consolidated group are recognised as amounts payable/
(receivable) to/(from) other entities in the tax consolidated group in
conjunction with any tax funding arrangement amounts (refer below).
Qantas recognises deferred tax assets arising from unused tax losses of the
tax consolidated group to the extent that it is probable that future taxable
profits of the tax consolidated group will be available against which the
asset can be utilised.
Any subsequent period adjustments to deferred tax assets arising from
unused tax losses assumed from controlled entities within the tax
consolidated group are recognised by the head entity only.
The members of the tax consolidated group have entered into a tax funding
arrangement, which sets out the funding obligations of members of the tax
consolidated group with respect to tax amounts.
The tax funding arrangements require payments to/(from) the head entity
equal to the current tax liability/asset assumed by the head entity and any
tax loss deferred tax asset assumed by the head entity. The members of the
tax consolidated group have also entered into a valid tax sharing
agreement under the tax consolidation legislation which sets out the
allocation of income tax liabilities between the entities should the head
entity default on its tax payment obligations and the treatment of entities
leaving the tax consolidated group. In the opinion of the Directors, the tax
sharing agreement limits, subject to any ASIC Class Order, the joint and
several income tax related liability of the wholly-owned entities of the tax
consolidated group in the case of default by Qantas.
(L) RECEIVABLES
Current receivables are recognised and carried at original invoice amount
less impairment losses. Bad debts are written off as incurred. Non-current
receivables are carried at the present value of future net cash inflows
expected to be received.
(M) CONTRACT WORK IN PROGRESS
Contract work in progress is stated at cost plus profit recognised to date,
in accordance with accounting policy Note 1(G), less a provision for
foreseeable losses and less progress billings. Cost includes all expenditure
related directly to specific projects and an allocation of fixed and variable
overheads incurred in the Qantas Group’s contract activities based on
normal operating capacity.
(N) INVENTORIES
Engineering expendables, consumable stores and work in progress are
valued at weighted average cost, less any applicable allowance for
obsolescence. Inventories held for sale are valued at the lower of cost and
net realisable value, calculated as estimated selling price net of estimated
selling costs.
(O) IMPAIRMENT
The carrying amounts of assets (other than inventories and deferred tax
assets) are reviewed at each balance date to determine whether there is
any indication of impairment. If any such conditions exists, the assets’s
recoverable amount is estimated. The recoverable amount of other assets
is the greater of their fair value less costs to sell, and value in use. Assets,
which primarily generate cash flows as a group, such as aircraft, are
assessed on a cash generating unit basis inclusive of related infrastructure
and intangible assets and compared to net cash flows for the unit.
Estimated net cash flows used in determining recoverable amounts have
been discounted to their net present value, using a rate that reflects current
market assessments of the time value of money and management’s
assessment of the risks specific to the assets of the cash generating unit.
When a decline in the fair value of an available-for-sale financial asset has
been recognised directly in equity and there is objective evidence that the
asset is impaired, the cumulative loss that had been recognised directly in
equity is recognised in profit or loss. The amount of the cumulative loss that
is recognised in profit or loss is the difference between the acquisition cost
and current fair value, less any impairment loss on that financial asset
previously recognised in profit or loss.
1 The tax-consolidated group also includes the partnership between Qantas
and AAL Aviation Limited and between Qantas Flight Catering Limited and
AAL Aviation Limited.