Annual Report 2011 - Watercare

Watercare Services Limited
2011 ANNUAL REPORT
STATEMENT OF ACCOUNTING POLICIES (continued)
FOR THE YEAR ENDED 30 JUNE 2011
15. Provisions
The group provides for the cost of employees’ entitlements to annual leave, sick leave and gratuities under the terms of their employment
contracts. These amounts are expected to be settled within one year and are therefore recorded in current provisions.
The group provides for the liability for employees’ long service leave under the terms of their employment contracts. The liability is calculated
as the present value of the expected future payments after allowing for wage and salary increases, the rate of staff turnover and term of service
with the group. Long service leave is recorded in current and non-current provisions. The amount recorded in non-current provisions represents
the portion which is due for payment beyond one year from the reporting date.
Other provisions are recognised when the group has a present obligation as a result of a past event and it is probable that there is a future
outflow of resources and the amount of the provision can be reliably measured.
The amount recorded as a provision is the best estimate of the consideration required to settle the obligation at the end of each year.
16. Contract Retentions
Certain construction contracts entitle the group to retain specified amounts to ensure the performance of contract obligations. These retentions
are recorded as a liability, and either used to remedy contract performance or paid to the contractor at the end of the retention period.
17. Foreign Currencies
The cost of assets purchased with foreign currencies is calculated using the exchange rate on the date of purchase. Any difference between
this cost and the amount later required to settle the transaction is recognised as a foreign exchange gain or loss.
Operating expenses in foreign currencies are converted at the rate of exchange on the date of the transaction.
18. Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument in another.
As such, the group recognises all its financial instruments as soon as it becomes a party to the contractual provisions of the financial instrument.
At each reporting date the group includes in its statement of financial position a range of financial assets that include cash and short-term
deposits, trade and other receivables, and derivative instruments. Similarly it also reflects in its statement of financial position a number of
financial liabilities that include bank overdrafts, trade and other payables, borrowings and derivative instruments.
A derivative is a financial instrument or other contract that satisfies all of the following characteristics: its value changes in response to the change
in a specified variable such as an interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit
rating or credit index; it requires no initial investment or an initial investment that is smaller than would be required for other types of similar
contracts and it will be settled at some future date.
Sourcing fair values
For financial instruments that are traded in active markets, quoted market prices are used as a measure of fair value. Where quoted market prices
do not exist, fair values are estimated using present value or other market-accepted valuation techniques, using methods and assumptions that
are based on market conditions and risks existing at balance date.
Recognition and measurement of financial assets
Financial assets are initially measured at fair value and for the purpose of subsequent measurement, the group has categorised financial assets
into the following categories. Each category determines the process of subsequent measurement and how the resulting surplus or deficit should
be reflected in the statement of comprehensive income. The group does not currently have financial assets in the held to maturity and availablefor-sale
categories.
2011 Financial Report
Loans and receivables
The group’s cash and cash equivalents and trade and other receivables fall into this category of financial instruments. These are initially recorded
at their fair value plus transaction costs because they have fixed or determinable payments that are not quoted in an active market. Fair value is
estimated as the present value of future cash flows.
After initial recognition, they are recorded at amortised cost using the effective interest method, less provision for impairment. The amount of
impairment loss is the difference between the assets’ carrying amount and the present value of estimated future cash flows, discounted at the
original effective interest rate. The amount of the impairment loss is recognised in determining the surplus or deficit for the year.
The collection of trade receivables is reviewed on an ongoing basis and debts known to be uncollectible are written off. When there is objective
evidence that the group will not be able to collect all amounts due according to the original terms of the receivables, a provision is made for
doubtful receivables to recognise an impairment in the carrying value of receivables at balance date. This amount provided is recorded in
determining surplus or deficit.
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