Telstra 2011 Annual Report Download - page 109

Telstra Corporation Limited and controlled entities
94
Notes to the Financial Statements (continued)
2.8 Investments (continued)
(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 reporting 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 other comprehensive income 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.
2.9 Impairment
(a) Non-financial assets
Our tangible and intangible assets (excluding inventories, assets
arising from construction contracts, current and deferred tax
assets, defined benefit assets and financial assets) are measured
using the cost basis and are written down to recoverable amount
where their carrying value exceeds recoverable amount.
Assets with an indefinite useful life are not subject to amortisation
and are tested on an annual basis for impairment, or where an
indication of impairment exists. Assets that are subject to
amortisation are reviewed for impairment wherever events or
changes in circumstances indicate that the carrying amount may
not be recoverable.
The recoverable amount of an asset is the higher of its fair value
less costs to sell or its value in use. Value in use represents the
present value of the future amount expected to be recovered
through the cash inflows and outflows arising from the asset’s
continued use and subsequent disposal. We recognise any
reduction in the carrying value as an expense in the income
statement in the reporting period in which the impairment loss
occurs.
In determining value in use, we apply management judgement in
establishing forecasts of future operating performance, as well as
the selection of growth rates, terminal rates and discount rates.
These judgements are applied based on our understanding of
historical information and expectations of future performance.
The expected net cash flows included in determining recoverable
amounts of our assets are discounted to present values using a
market determined, risk adjusted, discount rate. When
determining an appropriate discount rate, we use the weighted
average cost of capital (WACC) as an initial point of reference,
adjusted for specific risks associated with each different category
of assets assessed.
For assets that do not generate largely independent cash inflows,
the recoverable amount is determined for the cash generating unit
(CGU) to which that asset belongs and for goodwill, cannot be
allocated to a CGU that is larger than an operating segment. Our
CGUs are determined according to the lowest level of aggregation
for which an active market exists and the assets involved generate
largely independent cash inflows.
We apply management judgement to establish our CGUs. We have
determined that assets which form part of our ubiquitous
telecommunications network work together to generate net cash
flows. No one item of telecommunications equipment is of any
value without the other assets to which it is connected in order to
achieve the delivery of products and services. As a result, we have
determined that the ubiquitous telecommunications network is a
single CGU. We have referred to this CGU as the Telstra Entity CGU
in our financial report.
The Telstra Entity CGU excludes the hybrid fibre coaxial (HFC) cable
network, which we consider not to be integrated with the rest of our
telecommunications network. Refer to note 21 for further details.
(b) Financial assets
At each reporting date we assess whether there is objective
evidence to suggest that any of our financial assets are impaired.
For listed securities and investments in other corporations, we
consider the financial asset to be impaired when there has been a
significant or prolonged decline in the fair value of the financial
asset below its acquisition cost. At this time, all revaluation losses
in relation to impaired financial assets that have been accumulated
within other comprehensive income are recognised in the income
statement.
For financial assets held at cost or amortised cost, we consider the
financial asset to be impaired when there is objective evidence as
a result of one or more events that the present value of estimated
discounted future cash flows is lower than the carrying value. Any
impairment losses are recognised immediately in the income
statement.
2. Summary of significant accounting policies, estimates, assumptions and
judgements (continued)