Telstra 2002 Annual Report Download - page 185

Telstra Corporation Limited and controlled entities
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Notes to the Financial Statements (continued)
1.6 Cash and cash equivalents (note 8)
Cash includes cash at bank and on hand, bank deposits, bills of
exchange and commercial paper with an original maturity date not
greater than three months.
Bank deposits (including those with an original maturity in excess of
three months, which are classified as receivables) are recorded at
amounts to be received and interest revenue is recognised on an
effective yield to maturity basis.
Bills of exchange and commercial paper (including those with an
original maturity in excess of three months, which are classified as
receivables) are valued at amortised cost with interest revenue
recognised on an effective yield to maturity basis.
Statement of cash flows discloses cash net of outstanding bank
overdrafts. Bank overdrafts are shown in note 16.
1.7 Receivables (note 9)
Trade debtors are recorded at amounts to be received. A provision for
doubtful debts is raised based on a general and specific review of
outstanding amounts at balance date. Bad debts which have been
specifically provided for in previous years are recorded against the
provision for doubtful debts (the provision is reduced). In all other
cases, bad debts are written off as an expense directly in the
statement of financial performance.
Employee share loans are carried at the amount advanced to each
employee, less after tax dividend repayments and loan repayments.
The outstanding principal on these loans is mainly interest free. The
current portion of the loan receivable is calculated using estimated
loan repayments expected to be received from tax adjusted dividend
payments and estimated loan repayments as a result of staff exiting
the employee share plans described in note 19.
1.8 Inventories (note 10)
Our finished goods include goods available for sale, and material and
spare parts to be used in constructing and maintaining the
telecommunications network. We value inventories at the lower of
cost and net realisable value.
We allocate cost to the majority of inventory items on hand at
balance date using the weighted average cost basis. For the
remaining quantities on hand, actual cost is used.
Current inventories are inventory items held for resale or items to be
consumed into the telecommunications network within one year.
Non current inventories are items which will be consumed into the
telecommunications network after one year.
1.9 Construction contracts (note 10)
(a) Valuation
We record construction contracts in progress at cost (net of any
provision for foreseeable losses) less progress billings where profits
are yet to be recognised.
Cost includes:
• both variable and fixed costs directly related to specific contracts;
• amounts which can be allocated to contract activity in general and
which can be allocated to specific contracts on a reasonable basis;
and
• costs expected to be incurred under penalty clauses, warranty
provisions and other variances.
Where a significant loss is estimated to be made on completion, a
provision for foreseeable losses is brought to account and recorded
against the gross amount of construction work in progress.
(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 estimated costs of completion (refer to note 1.19(d)).
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
inventories after deducting progress billings (refer note 10). Where
progress billings exceed the balance of construction work in progress
balance the net amount is shown as a current liability within other
creditors.
1.10 Investments (note 11)
(a) Controlled entities
Our investments in controlled entities are valued at cost less any
amount provided for permanent reduction in the investment value.
1. Summary of accounting policies (continued)