McPHERSON’S LIMITED

 ANNUAL REPORT 2015  



  

45

Tax consolidation legislation

McPherson’s Limited and its wholly-owned Australian controlled 

entities have implemented the tax consolidation legislation. As a 

consequence, these entities are taxed as a single entity. McPherson’s 

Limited, as the head entity in the tax consolidated group, recognises 

current tax amounts relating to transactions, events and balances of 

the wholly-owned Australian controlled entities in this group as if those 

transactions, events and balances were its own, in addition to the 

current and deferred tax amounts arising in relation to its own 

transactions, events and balances.  Amounts receivable or payable 

under an accounting Tax Funding Agreement with the tax 

consolidated entities are recognised separately as tax-related amounts 

receivable or payable.  Expenses and revenues arising under the Tax 

Funding Agreement are presented as income tax expense (credit).

(G) LEASES

A distinction is made between finance leases, which effectively transfer 

from the lessor to the lessee substantially all the risks and benefits 

incidental to ownership of leased non-current assets, and operating 

leases under which the lessor substantially retains all such risks and 

benefits.  Where a non-current asset is acquired by means of a finance 

lease, the lower of the fair value of leased property and the present 

value of the minimum lease payments is established as a non-current 

asset at the beginning of the lease term and amortised on a straight-

line basis over its expected economic life.  A corresponding liability is 

also established and each lease payment is allocated between the 

principal component and interest expense.
Operating lease payments (net of any incentives received from the 

lessor) are charged to profit or loss on a straight-line basis over the 

period of the lease. 

(H) BUSINESS COMBINATIONS

The acquisition method of accounting is used to account for all 

business combinations regardless of whether equity instruments or 

other assets are acquired.  The consideration transferred for the 

acquisition comprises the fair value of the assets transferred, shares 

issued and liabilities incurred or assumed at the date of exchange.  The 

consideration transferred also includes the fair value of any asset or 

liability resulting from a contingent consideration arrangement.  

Acquisition related costs are expensed as incurred. Where equity 

instruments are issued in an acquisition, the value of the instruments is 

their published market price as at the date of exchange unless, in rare 

circumstances, it can be demonstrated that the published price at the 

date of exchange is an unreliable indicator of fair value and that other 

evidence and valuation methods provide a more reliable measure of 

fair value.  Transaction costs arising on the issue of equity instruments 

are recognised directly in equity.
Identifiable assets acquired and liabilities and contingent liabilities 

assumed in a business combination are, with limited exceptions, 

measured initially at their fair values at the acquisition date.  The excess 

of the consideration transferred over the fair value of the Group’s share 

of the identifiable net assets acquired is recorded as goodwill (refer to 

Note 1(R)).  If the consideration transferred is less than the fair value of 

the net assets of the business acquired, the difference is recognised 

directly in profit or loss as a bargain purchase, but only after a 

reassessment of the identification and measurement of the net assets 

acquired.
Contingent consideration is classified either as equity or a financial 

liability.  Amounts classified as a financial liability are subsequently 

remeasured to fair value with changes in fair value recognised in profit 

or loss.

(I) 

IMPAIRMENT OF ASSETS

Goodwill and intangible assets that have an indefinite useful life are not 

subject to amortisation and are tested annually for impairment, or 

more frequently if events or changes in circumstances indicate that 

they might be impaired.
Other assets are tested for impairment whenever events or changes in 

circumstances indicate that the carrying amount may not be 

recoverable.  An impairment loss is recognised for the amount by 

which the asset’s carrying amount exceeds its recoverable amount. 

The recoverable amount is the higher of an asset’s fair value less costs 

to sell and value in use.  For the purposes of assessing impairment, 

assets are grouped at the lowest levels for which there are separately 

identifiable cash inflows (cash generating units).  Non-financial assets 

other than goodwill that suffered an impairment are reviewed for 

possible reversal of the impairment at the end of each reporting 

period.

(J) CASH AND CASH EQUIVALENTS

For the purpose of presentation in the statement of cash flows, cash 

and cash equivalents includes cash on hand and deposits at call which 

are readily convertible to cash on hand and which are used in the cash 

management function on a day-to-day basis, net of outstanding bank 

overdrafts.  Bank overdrafts are shown within borrowings in current 

liabilities in the balance sheet.

(K) TRADE RECEIVABLES

Trade receivables are recognised initially at fair value and subsequently 

measured at amortised cost using the effective interest method, less 

provision for impairment.  Trade receivables are generally due for 

settlement no more than 60 days from the date of recognition.
Collectability of trade receivables is reviewed on an ongoing basis.  

Debts which are known to be uncollectible are written off.  A provision 

for impairment of trade receivables is established when there is 

objective evidence that the Group will not be able to collect all 

amounts due according to the original terms of receivables.

(L) INVENTORIES

Inventories (including work in progress) are valued at the lower of cost 

and net realisable value.  Costs are assigned to individual items of 

inventory on a weighted average basis.  Cost includes the 

reclassification from equity of any gains or losses on qualifying cash 

flow hedges relating to purchases of inventory.  Cost of work in 

progress and finished manufactured products includes materials, 

labour and an appropriate proportion of factory overhead expenditure, 

the latter being allocated on the basis of normal operating capacity.  

Costs of purchased inventory are determined after deducting rebates 

and discounts. Unrealised profits on inter-company inventory transfers 

are eliminated on consolidation.  Net realisable value is the estimated 

selling price in the ordinary course of business less the estimated costs 

necessary to make the sale.

(M) NON-CURRENT ASSETS (OR DISPOSAL 

GROUPS) HELD FOR SALE AND DISCONTINUED 

OPERATIONS

Non-current assets (or disposal groups) are classified as held for sale if 

their carrying amount will be recovered principally through a sale 

transaction rather than through continuing use and a sale is considered 

highly probable. They are measured at the lower of their carrying 

amount and fair value less costs to sell, except for assets such as 

deferred tax assets, assets arising from employee benefits and 

financial assets.