Qantas 2007 Annual Report Download - page 83

81Qantas |Annual Report 2007
(K) Tax Consolidation continued
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 an allowance 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.
Contract work in progress is presented as part of trade and other
receivables in the Balance Sheet. If payments received from customers
exceed the income recognised, then the difference is presented as
deferred income in the Balance Sheet.
(N) Inventories
Engineering expendables, consumable stores and work in progress
are valued at weighted average cost, less any applicable allowance
for obsolescence.
(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’ 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 (CGU) 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 as described in Note 12.
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 the Income Statement. The amount of the
cumulative loss that is recognised in the Income Statement is the
difference between the acquisition cost and current fair value, less any
impairment loss on that financial asset previously recognised in the
Income Statement.
An appropriate impairment charge is made if the carrying amount of
a non-current asset exceeds its recoverable amount. The impairment
is expensed in the year in which it occurs. An impairment loss is reversed
if there has been a change in the estimates used to determine the
recoverable amount. An impairment loss with respect to goodwill
is not reversed.
(P) Investments
The investment in Air New Zealand Limited (Air New Zealand) was classified
as being available for sale and was stated at fair value in the prior year,
with any resultant gain or loss recognised directly in equity, except for
impairment losses. This investment was sold in June 2007 and the
cumulative gain previously recognised directly in equity was included
in the Income Statement.
(Q) Property, Plant and Equipment
Owned Assets
Items of property, plant and equipment are stated at cost or deemed cost
less accumulated depreciation and impairment losses. Items of property,
plant and equipment are initially recorded at cost, being the fair value
of the consideration provided plus incidental costs directly attributable
to the acquisition. The cost of acquired assets includes the initial estimate
at the time of installation and during the period of use, when relevant, of
the costs of dismantling and removing the items and restoring the site on
which they are located, and changes in the measurement of existing
liabilities recognised for these costs resulting from changes in the timing or
outflow of resources required to settle the obligation or from changes in
the discount rate.
Certain items of property, plant and equipment that had been revalued to
fair value on or prior to 1 July 2004, the date of transition to A-IFRS, are
measured on the basis of deemed cost, being the revalued amount at the
date of that revaluation.
An element of the cost of an acquired aircraft is attributed on acquisition
to its service potential reflecting the maintenance condition of its engines
and airframe. This cost is depreciated over the shorter of the period to
the next major inspection event or the remaining life of the asset.
The standard cost of subsequent major airframe and engine maintenance
checks is capitalised and depreciated over the shorter of the scheduled
usage period to the next major inspection event or the remaining life of
the aircraft. Manpower costs in relation to employees that are dedicated
to major modifications to aircraft are capitalised as part of the cost of
the modification to which they relate.
Borrowing costs associated with the acquisition of qualifying assets such
as aircraft and the acquisition, construction or production of significant
items of other property, plant and equipment are capitalised as part
of the cost of the asset to which they relate.
When an obligation exists to dismantle and remove an item of property,
the present value of the estimated cost to restore the site is capitalised
into the cost of the asset to which they relate and a provision created.
The unwinding of the discount is treated as a finance charge.
Notes to the Financial Statements
for the year ended 30 June 2007
1. Statement of Significant Accounting Policies continued