Telstra 2009 Annual Report Download - page 106

Telstra Corporation Limited and controlled entities
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Notes to the Financial Statements (continued)
2.8 Investments
(a) Controlled entities
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) Jointly controlled and associated entities
(i) Jointly controlled entities
A jointly controlled entity is a contractual arrangement (in the form of
an entity) 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 interests in
jointly controlled entities, 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 initial recorded
amount of the investment for our share of:
• profits or losses after tax for the year since the date of investment;
• reserve movements since the date of investment;
• unrealised profits or losses;
• dividends or distributions 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 these
long term assets in proportion with our cumulative losses.
(ii) Associated entities
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 accounted for using the equity method of
accounting in the Telstra Group financial statements and the cost
method in the Telstra Entity 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 obtain 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 corporations
Our investments in listed securities and in other corporations are
classified as ‘available-for-sale’ financial assets and 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
valuation techniques, including reference to discounted cash flows
and fair values of recent arms length transactions involving
instruments that are substantially the same.
We remeasure the 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)