Telstra 2007 Annual Report Download - page 125

Telstra Corporation Limited and controlled entities
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Notes to the Financial Statements (continued)
2.7 Construction contracts (continued)
(b) Recognition of profit
Profit is recognised on an individual project basis using the percentage
of completion method. The percentage of completion is calculated
based on estimat ed costs of completion, refer to note 2.17(d) for
further details.
Profits are recognised when:
• the stage of contract completion can be reliably determined;
• costs to date can be clearly identified; and
• total contract revenues to be received and costs to complete can be
reliably estimated.
(c) Disclosure
The construction work in progress balance is recorded in current
invent ories after deducting progress billings. Where progress billings
exceed the balance of construction work in progress, the net amount
is shown as a current liability within trade and ot her payables.
2.8 Investments
(a) Controlled ent ities
Investments in controlled entities are recorded at cost less
impairment of the investment value.
Where we hedge the value of our investment in an overseas controlled
entity, the hedge is accounted for in accordance with note 2.22.
(b) Joint ly controlled and associated entities
(i) Jointly controlled entities
A jointly controlled entity is a contractual arrangement (in the form of
an entit y) whereby two or more parties take on an economic activity
which is governed by joint control. Joint control involves the
contractually agreed sharing of control over an entity where two or
more parties must consent to all major decisions. Our int erests in
jointly controlled ent ities, including partnerships, are accounted for
using the equity method of accounting in the Telstra Group financial
statements and the cost method in the Telstra Entity financial
statements.
Under the equity method of accounting, we adjust the init ial recorded
amount of the investment for our share of:
• profits or losses for the year aft er tax since the date of investment;
• reserve movements since the date of investment;
• unrealised profits or losses;
• dividends or distribut ions received; and
• deferred profit brought to account.
Where the equity accounted amount of our investment in an entity
falls below zero, we suspend the equity method of accounting and
record the investment at zero. When this occurs, the equity method of
accounting does not recommence until our share of profits and
reserves exceeds the cumulative prior years share of losses and
reserve reductions.
Where we have long term assets that in substance form part of our
investment in equity accounted interests and the equity accounted
amount of investment falls below zero, we reduce the value of the
assets in proportion with our cumulative losses.
(ii) Associated ent ities
Where we hold an interest in the equity of an entity, generally of
between 20% and 50%, and are able to apply significant influence to
the decisions of the entity, that entity is an associated entity.
Associated entities are account ed for using the equity method of
accounting in the Telstra Group financial statements and the cost
method in the Telstra Ent ity financial statements.
(c) Jointly controlled assets
A jointly controlled asset involves the joint control of one or more
assets acquired and dedicated for the purpose of a joint venture. The
assets are used to obt ain benefits for the venturers. Where the asset is
significant we record our share of the asset. We record expenses based
on our percentage ownership interest of the jointly controlled asset.
(d) Listed securities and investments in other corporat ions
Our investments in listed securit ies and in other corporations are
classified as ‘available-for-sale’ financial assets and as such are
measured at fair value at each reporting date.
Fair values are calculated on the following basis:
• for listed securities traded in an organised financial market, we use
the current quoted market bid price at balance date; and
• for investments in unlisted entities whose securities are not traded
in an organised financial market, we establish fair value by using
valuat ion techniques, including reference to discounted cash flows
and fair values of recent arms length transactions involving
instruments that are substantially the same.
We remeasure t he fair value of our investments in listed securities and
other corporations at each reporting date. Any gains or losses are
recognised in equity until we dispose of the investment, or we
determine it to be impaired, at which time we transfer all cumulative
gains and losses to the income statement.
Purchases and sales of investments are recognised on settlement date
being the date on which we receive or deliver an asset.
2. Summary of accounting policies (continued)