Telstra 2011 Annual Report Download - page 107

Telstra Corporation Limited and controlled entities
92
Notes to the Financial Statements (continued)
2.2 Principles of consolidation (continued)
We account for the acquisition of our controlled entities using the
acquisition method of accounting. This involves recognising the
acquiree’s identifiable assets, liabilities and contingent liabilities at
their fair value at the date of acquisition. Any excess of the fair
value of acquisition over our interest in the fair value of the
acquiree’s identifiable assets, liabilities and contingent liabilities is
recognised as goodwill.
The financial statements of controlled entities are prepared for the
same reporting period as the Telstra Entity, using consistent
accounting policies. Adjustments are made to bring into line any
dissimilar accounting policies.
2.3 Foreign currency translation
(a) Transactions and balances
Foreign currency transactions are converted into the relevant
functional currency at market exchange rates applicable at the date
of the transactions. Amounts payable or receivable in foreign
currencies at reporting date are converted into the relevant
functional currency at market exchange rates at reporting date.
Any currency translation gains and losses that arise are included in
our income statement. Where we enter into a hedge for a specific
expenditure commitment or for the construction of an asset,
hedging gains and losses are accumulated in other comprehensive
income over the period of the hedge and are transferred to the
carrying value of the asset upon completion, or included in the
income statement at the same time as the discharge of the
expenditure commitment.
The consolidated financial statements are presented in Australian
dollars, which is the functional and presentation currency of Telstra
Corporation Limited.
(b) Financial reports of foreign operations that have a functional
currency that is not Australian dollars
Our operations include subsidiaries, associates, and jointly
controlled entities, the activities and operations of which are in an
economic environment where the functional currency is not
Australian dollars. The financial statements of these entities are
translated to Australian dollars (our presentation currency) using
the following method:
• assets and liabilities are translated into Australian dollars using
market exchange rates at reporting date;
• equity at the date of investment is translated into Australian
dollars at the exchange rate current at that date. Movements
post-acquisition (other than retained profits/accumulated
losses) are translated at the exchange rates current at the dates
of those movements;
• income statements are translated into Australian dollars at
average exchange rates for the year, unless there are significant
identifiable transactions, which are translated at the exchange
rate that existed on the date of the transaction; and
• currency translation gains and losses are recorded in other
comprehensive income.
Refer to note 18 for details regarding our accounting policy for
derivative financial instruments and foreign currency monetary
items that are used to hedge our net investment in entities which
have a functional currency not in Australian dollars.
2.4 Cash and cash equivalents
Cash and cash equivalents include cash at bank and on hand, bank
deposits, bills of exchange and promissory notes that are held for
the purposes of meeting short term cash commitments rather than
investment purposes.
Bank deposits are recorded at amounts to be received. Bills of
exchange and promissory notes are classified as ‘available-for-sale’
financial assets and are held at fair value. The carrying amount of
these assets approximates their fair value due to the short term to
maturity.
2.5 Trade and other receivables
Trade and other receivables are considered financial assets. They
are initially recorded at the fair value of the amounts to be received
and are subsequently measured at amortised cost using the
effective interest method. These financial assets are derecognised
when the rights to receive cash flows from the financial assets have
expired or have been transferred and we have transferred
substantially all the risks and rewards of ownership.
An allowance for doubtful debts is raised to reduce the carrying
amount of trade receivables, based on a review of outstanding
amounts at reporting date. The allowance for doubtful debts is
based on historical trends and management's assessment of
general economic conditions. An allowance for doubtful debts is
raised when management considers there is a credit risk,
insolvency risk or incapacity to pay a legally recoverable debt. Bad
debts specifically provided for in previous years are eliminated
against the allowance for doubtful debts. In all other cases, bad
debts are eliminated directly against the carrying amount and
written off as an expense in the income statement.
2.6 Inventories
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.
For the majority of inventory items, we assign cost using the
weighted average cost basis. For materials used in the production
of directories the ‘first in first out’ basis is used for assigning cost.
2. Summary of significant accounting policies, estimates, assumptions and
judgements (continued)