Qantas 2006 Annual Report Download - page 82

80
Notes to the Financial Statements
for the year ended 30 June 2006
Employee Share Plans
The fair value of share based entitlements granted to employees after
7 November 2002 is recognised as an employee expense with a
corresponding increase in equity. The fair value is measured at grant date
and spread over the period during which the employees become
unconditionally entitled to the equity instrument. The fair value of the
entitlements granted is measured using a Monte-Carlo simulation model,
taking into account the terms and conditions upon which the entitlements
were granted. The amount recognised as an expense is adjusted to reflect
the actual number of entitlements that vest except where forfeiture is only
due to share prices not achieving the threshold for vesting.
Long Service Leave
The provision for employee benefits to long service leave represents the
present value of the estimated future cash outflows to be made resulting
from employees’ services provided to balance date.
The provision is calculated using expected future increases in wage and
salary rates including related on-costs and expected settlement dates based
on staff turnover history and is discounted using the rates attaching to
Australian government bonds at balance date which most closely match the
terms of maturity of the related liabilities. The unwinding of the discount is
treated as a finance charge.
Defined Contribution Superannuation Plans
The Qantas Group contributes to employee defined contribution
superannuation plans. Contributions to these plans are recognised as an
expense in the Income Statement as incurred.
Defined Benefit Superannuation Plans
Qantas’ net obligation with respect to defined benefit superannuation plans
is calculated separately for each plan. The Qantas Superannuation Plan has
been split based on the divisions which relate to accumulation members
and defined benefit members. Only defined benefit members are included
in Qantas’ net obligation calculations. Defined contribution members’
obligations are accrued for as per the above accounting policy. The
calculation estimates the amount of future benefit that employees have
earned in return for their service in the current and prior periods; that
benefit is discounted to determine its present value and the fair value of
any plan assets is deducted.
The discount rate is the yield at the Balance Sheet date on government
bonds that have maturity dates approximating to the terms of Qantas’
obligations. The calculation is performed by a qualified actuary using the
“projected unit credit method”.
When the benefits of a plan are improved, the portion of the increased
benefit relating to past service by employees is recognised as an expense in
the Income Statement on a straight-line basis over the average period until
the benefits become vested. To the extent that the benefits
vest immediately, the expense is recognised immediately in the
Income Statement.
All actuarial gains and losses as at 1 July 2004, the date of transition to
A-IFRS, were recognised. With respect to actuarial gains and losses that
arise subsequent to 1 July 2004 in calculating Qantas’ obligation with
respect to a plan, to the extent that any cumulative unrecognised actuarial
gain or loss exceeds 10 per cent of the greater of the present value of the
defined benefit obligation and the fair value of plan assets, that portion is
recognised in the Income Statement over the expected average remaining
working lives of the active employees participating in the plan. Otherwise,
the actuarial gain or loss is not recognised.
Where the calculation results in plan assets exceeding plan liabilities, the
recognised asset is limited to the net total of any unrecognised actuarial
losses and past service costs and the present value of any future refunds
from the plan or reductions in future contributions to the plan.
Past service cost is the increase in the present value of the defined benefit
obligation for employee services in prior periods, resulting in the current
period from the introduction of, or changes to, post-employment benefits or
other long-term employee benefits. Past service costs may either be positive
(where benefits are introduced or improved) or negative (where existing
benefits are reduced).
Employee Termination Benefits
Provisions for termination benefits are only recognised when there is a
detailed formal plan for the termination and where there is no realistic
possibility of withdrawal.
(W) PROVISIONS
A provision is recognised when there is a present legal or constructive
obligation as a result of a past event and it is probable that an outflow
of economic benefits will be required to settle the obligation, the timing
or amount of which is uncertain.
If the effect is material, a provision is determined by discounting the
expected future cash flows required to settle the obligation at a pre-tax
rate that reflects current market assessments of the time value of money
and the risks specific to the liability. The unwinding of the discount is
treated as a finance charge.
Dividends
A provision for dividends payable is recognised in the reporting period in
which the dividends are declared, for the entire amount, regardless of the
extent to which the dividend will be paid in cash.
Insurance
Qantas is a licensed self-insurer under the New South Wales Workers’
Compensation Act, the Victorian Accident Compensation Act and the
Queensland Workers’ Compensation and Rehabilitation Act. Qantas has
made provision for all notified assessed workers’ compensation liabilities,
together with an estimate of liabilities incurred but not reported, based on
an independent actuarial assessment discounted using government bond
rates that have maturity dates approximating the terms of Qantas’
obligations. Workers’ compensation for all remaining employees is
commercially insured.
1. Statement of Signifi cant Accounting Policies continued