Telstra 2011 Annual Report Download - page 113

Telstra Corporation Limited and controlled entities
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Notes to the Financial Statements (continued)
2.13 Trade and other payables
Trade and other payables, including accruals, are recorded when
we are required to make future payments as a result of purchases
of assets or services. Trade and other payables are carried at
amortised cost.
2.14 Provisions
Provisions are recognised when the group has:
• a present legal or constructive obligation to make a future
sacrifice of economic benefits as a result of past transactions or
events;
• it is probable that a future sacrifice of economic benefits will
arise; and
• a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at reporting
date, taking into account the risks and uncertainties surrounding
the obligation. Where a provision is measured using the cash flows
estimated to settle the present obligation, its carrying amount is
the present value of those cash flows.
(a) Employee benefits
We accrue liabilities for employee benefits to wages and salaries,
annual leave and other current employee benefits at their nominal
amounts. These are calculated based on remuneration rates
expected to be current at the date of settlement and include related
on costs.
Certain employees who have been employed by Telstra for at least
10 years are entitled to long service leave of three months (or more
depending on the actual length of employment), which is included
in our employee benefits provision.
We accrue liabilities for other employee benefits not expected to be
paid or settled within 12 months of reporting date, including long
service leave, at the present values of future amounts expected to
be paid. This is based on projected increases in wage and salary
rates over an average of 10 years, experience of employee
departures and periods of service.
We calculate present values using rates based on government
guaranteed securities with similar due dates to our liabilities.
We apply management judgement in estimating the following key
assumptions used in the calculation of our long service leave
provision at reporting date:
• weighted average projected increases in salaries; and
• discount rate.
Refer to note 16 for further details on the key management
judgements used in the calculation of our long service leave
provision.
(b) Workers’ compensation
We self insure our workers’ compensation liabilities. We take up a
provision for the present value of these estimated liabilities, based
on an actuarial review of the liability. This review includes
assessing actual accidents and estimating claims incurred but not
reported. Present values are calculated using appropriate rates
based on the risks specific to the liability with similar due dates.
Certain controlled entities do not self insure, but pay annual
premiums to third party insurance companies for their workers’
compensation liabilities.
(c) Redundancy and restructuring costs
We recognise a provision for redundancy costs when a detailed
formal plan for the redundancies has been developed and a valid
expectation has been created that the redundancies will be carried
out in respect of those employees likely to be affected.
We recognise a provision for restructuring when a detailed formal
plan has been approved and we have raised a valid expectation to
those affected by the restructuring that the restructuring will be
carried out.
2.15 Borrowings
Borrowings are included as non current liabilities except for those
with maturities less than 12 months from the reporting date, which
are classified as current liabilities.
Borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset form part of the
cost of that asset. All other borrowing costs are recognised as an
expense in our income statement when incurred.
Our borrowings fall into two categories:
(a) Borrowings in a designated hedging relationship
Our offshore borrowings which are designated as hedged items are
subject to either fair value or cash flow hedges. The method by
which they are hedged determines their accounting treatment.
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.
2. Summary of significant accounting policies, estimates, assumptions and
judgements (continued)