Qantas 2005 Annual Report Download - page 75

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Qantas Annual Report 2005
~Notes to the Financial Statements~
for the year ended 30 June 2005
1. Statement of significant accounting policies continued
(t) PROVISIONS
A provision is recognised when there is a legal, equitable or constructive obligation as a result of a past event and it is probable that a
future sacrifice 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 (adjusted for expected future risks)
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, being risk free rates on government bonds most closely matching the expected future payments. The unwinding of
the discount is treated as part of the expense related to the particular provision.
DIVIDENDS
A provision for dividends payable is recognised in the reporting period in which the dividends are declared, for the entire undistributed
amount, regardless of the extent to which they will be paid in cash.
EMPLOYEE TERMINATION BENEFITS
Provisions for termination benefits are only recognised when a detailed plan has been approved and the termination benefit has either
commenced or been publicly announced or firm contracts related to the termination benefit have been entered into. Costs related to
ongoing activities are not provided for.
SURPLUS LEASED PREMISES
Provision is made for non-cancellable operating lease rentals payable on surplus leased premises when it is determined that no substantive
future benefit will be obtained from its occupancy and sub-lease rentals are less than the operating lease rentals.
The estimate is calculated based on discounted net future cash flows, using the interest rate implicit in the lease or an estimate thereof.
INSURANCE AND OTHER
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 assessed workers’ compensation
liabilities, together with an estimate of liabilities incurred but not reported, based on an independent actuarial assessment. Workers’
compensation for all remaining employees is insured commercially.
(u) EARNINGS PER SHARE
Basic earnings per share is determined by dividing the Qantas Group’s net profit attributable to members of Qantas by the weighted
average number of shares on issue during the current financial year (refer Note 35).
Diluted earnings per share is calculated after taking into account the number of ordinary shares to be issued for no consideration in
relation to dilutive potential ordinary shares (refer Note 35).
(v) STATEMENTS OF CASH FLOWS
For the purposes of the Statements of Cash Flows, cash includes cash at bank and on hand, cash at call, short-term money market
securities and term deposits.
(w) BORROWING COSTS
Borrowing costs include interest, amortisation of discounts or premiums relating to borrowings, amortisation of ancillary costs incurred in
connection with arrangement of borrowings and foreign exchange losses net of hedged amounts on borrowings.
Interest payments in respect of financial instruments classified as liabilities are included in borrowing costs.
Where interest rates are hedged or swapped, the borrowing costs are recognised net of any effect of the hedge or swap.
Borrowing costs are expensed as incurred unless they relate to qualifying assets. Qualifying assets are assets that necessarily take a
substantial period of time to get ready for their intended use. In these circumstances, borrowing costs are capitalised to the cost of the
assets. Where funds are borrowed generally, borrowing costs are capitalised using the average interest rate applicable to the Qantas
Group’s debt facilities being 7.0 per cent (2004: 6.6 per cent) in the current year. During the year, borrowing costs totalling $74.4 million
(2004: $49.2 million) were capitalised into the cost of qualifying assets.
(x) EXPENDITURE CARRIED FORWARD
Material items of expenditure are deferred to the extent that the Qantas Group considers it is probable that future economic benefits
embodied in the expenditure will eventuate and can be measured reliably, do not relate solely to revenue that has already been brought
to account and will contribute to the future earning capacity of the Qantas Group. Deferred expenditure items include guarantee fees,
bank fees and other fees associated with the establishment of lending facilities as well as option premiums and are amortised over the
period that the future economic benefits will be received. The deferred expenditure in the Qantas Group Statements of Financial Position
at 30 June 2005 is $159.2 million (2004: $146.7 million).