Telstra 2010 Annual Report Download - page 101

Telstra Corporation Limited and controlled entities
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Notes to the Financial Statements (continued)
2.7 Construction contracts
(a) Valuation
We record construction contracts in progress at cost (including any
profits recognised) less progress billings and any provision for
foreseeable losses. Cost includes:
• both variable and fixed costs directly related to specific
contracts;
• amounts which are attributable 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
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
inventories 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 other
payables.
2.8 Investments
(a) 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.
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.
(b) 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
income and expenses based on our percentage ownership interest
of the jointly controlled asset.
(c) 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.
2. Summary of accounting policies (continued)