Telstra 2007 Annual Report Download - page 129

Telstra Corporation Limited and controlled entities
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Notes to the Financial Statements (continued)
2.12 Intangible assets (continued)
(e) Amortisation (continued)
In relation to acquired intangible assets, we apply management
judgement to determine t he amortisation period based on the
expected useful lives of the respective assets. In some cases, the useful
lives of cert ain acquired intangible assets are supported by external
valuat ion advice on acquisition. In addition, we apply management
judgement t o assess annually, the indefinite useful life assumption
applied to certain acquired intangible assets.
2.13 Trade and other payables
Trade and other payables, including accruals, are recorded when we
are required to make future payments as a result of purchases of
assets or services. Trade and ot her payables are carried at amortised
cost.
2.14 Borrowings
Borrowings are included as non current liabilities except for those with
maturities less than twelve months from the balance sheet date,
which are classified as current liabilities.
Borrowing costs are recognised as an expense in our income
statement when incurred.
Our borrowings fall into two categories:
(a) Borrowings in a designated hedging relationship
Our offshore borrowings which are designated as hedged items are
subject to either fair value or cash flow hedges. The method by which
they are hedged determines their accounting treatment.
Borrowings subject to fair value hedges are recognised initially at fair
value. The carrying amount of our borrowings in fair value hedges (to
hedge against changes in value due to interest rate or currency
movements) is adjusted for fair value movements attributable to the
hedged risk. Fair value is calculated using valuation techniques which
utilise data from observable markets. Assumptions are based on
market conditions existing at each balance date. The fair value is
calculated as the present value of the estimat ed future cash flows
using an appropriat e market based yield curve which is independently
derived and representative of Telstra’s cost of borrowing. These
borrowings are remeasured each reporting period and the gains or
losses are recognised in the income statement along with the
associat ed gains or losses on t he hedging instrument.
Borrowings subject to cash flow hedges (to hedge against currency
movements) are recognised initially at fair value based on the
applicable spot price plus any transaction costs that are directly
attributable to the issue of the borrowing. These borrowings are
subsequently carried at amortised cost, translated at the applicable
spot exchange rate at reporting date. Any difference between the
final amount paid to discharge the borrowing and the initial
borrowing proceeds is recognised in the income statement over the
borrowing period using the effective interest method.
Currency gains or losses on the borrowings are recognised in the
income statement, along with the associated gains or losses on the
hedging instrument, which have been transferred from the cash flow
hedging reserve to the income stat ement at the completion of the
transaction.
(b) Borrowings not in a designated hedging relationship
Borrowings not in a designated hedging relationship include
commercial paper borrowings, Telstra bonds and domestic loans,
unsecured promissory notes and other borrowings.
All such instruments are init ially recognised at fair value plus any
transaction costs that are directly attributable to the issue of the
instruments and are subsequently measured at amortised cost. Any
difference between the final amount paid to discharge the borrowing
and the initial borrowing proceeds (including transaction costs) is
recognised in the income statement over the borrowing period using
the effective interest method.
2.15 Provisions
Provisions are recognised when the group has:
• a present legal or constructive obligation to make a future sacrifice
of economic benefit s as a result of past transactions or events;
• it is probable that a future sacrifice of economic benefits will arise;
and
• a reliable estimat e can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at reporting
date, taking into account the risks and uncert ainties surrounding the
obligat ion. Where a provision is measured using the cash flows
estimated to settle the present obligat ion, its carrying amount is the
present value of those cash flows.
(a) Employee benefits
We accrue liabilities for employee benefits to wages and salaries,
annual leave and other current employee benefits at their nominal
amounts. These are calculated based on remuneration rates expected
to be current at the date of settlement and include related on costs.
2.Summary of accounting policies (continued)