Telstra 2010 Annual Report Download - page 106

Telstra Corporation Limited and controlled entities
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Notes to the Financial Statements (continued)
2.15 Borrowings (continued)
(a) Borrowings in a designated hedging relationship (continued)
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 estimated future cash flows using an appropriate 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 associated gains or losses on the
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.
When currency gains or losses on the borrowings are recognised in
the income statement, the associated gains or losses on the
hedging instrument are also transferred from the cash flow hedging
reserve to the income statement.
We use management judgement in determining the appropriate
yield curve to use in the valuation, to appropriately designate our
hedging relationships and to test for effectiveness.
(b) Borrowings not in a designated hedging relationship
Borrowings not in a designated hedging relationship include
offshore loans, Telstra bonds and domestic loans.
All such instruments are initially 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.
(c) Statement of cash flows presentation
Where our short term borrowings have a maturity period of three
months or less, we report the cash receipts and subsequent
repayments on a net basis in the statement of cash flows.
2.16 Share capital
Issued and paid up capital is recognised at the fair value of the
consideration received by the Company.
Any transaction costs arising on the issue of ordinary shares are
recognised directly in equity, net of tax, as a reduction of the share
proceeds received.
Where we undertake a share buy-back, contributed equity is
reduced in accordance with the structure of the buy-back
arrangement. Costs associated with the buy-back, net of tax, are
also deducted from contributed equity. We also record the
purchase of Telstra Entity shares by our employee share plan trusts
as a reduction in share capital.
Share based remuneration associated with our employee share
plans is recognised as additional share capital. Non-recourse loans
provided to employees to participate in these employee share plans
are recorded as a reduction in share capital.
Refer to note 2.21 for further details regarding our accounting for
employee share plans.
2.17 Revenue recognition
Our categories of sales revenue are recorded after deducting sales
returns, trade allowances, discounts, sales incentives, duties and
taxes.
(a) Rendering of services
Revenue from the provision of our telecommunications services
includes telephone calls and other services and facilities provided,
such as internet and data.
We record revenue earned from:
• telephone calls on completion of the call; and
• other services generally at completion, or on a straight line basis
over the period of service provided, unless another method
better represents the stage of completion.
Installation and connection fee revenues that are not considered to
be separate units of accounting are deferred and recognised over
the average estimated customer life. Incremental costs directly
related to these revenues are also deferred and amortised over the
customer contract life in accordance with note 2.12 (d).
In relation to basic access installation and connection revenue, we
apply management judgement to determine the estimated
customer contract life. Based on our reviews of historical
information and customer trends, we have determined that our
average estimated customer life is 5 years (2009: 5 years).
(b) Sale of goods
Our revenue from the sale of goods includes revenue from the sale
of customer equipment and similar goods. This revenue is
recorded on delivery of the goods sold.
2. Summary of accounting policies (continued)