McPHERSON’S LIMITED

 ANNUAL REPORT 2015  

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47

(P) FAIR VALUE ESTIMATION

The fair value of financial assets and financial liabilities must be 

estimated for recognition and measurement or for disclosure 

purposes.
The fair value of interest rate hedge contracts is calculated as the 

present value of the estimated future cash flows.  The fair value of 

forward exchange contracts and other foreign currency contracts are 

determined using forward exchange market rates and volatilities at the 

balance sheet date.
The net nominal value of trade receivables and payables are assumed 

to approximate their fair values.  The fair value of financial liabilities for 

disclosure purposes is estimated by discounting the future contractual 

cash flows at the current market interest rate that is available to the 

Group for similar financial instruments.

(Q) PROPERTY, PLANT AND EQUIPMENT

All property, plant and equipment is stated at historical cost less 

depreciation.  Historical cost includes expenditure that is directly 

attributable to the acquisition of the items.  
Subsequent costs are included in the asset’s carrying amount or 

recognised as a separate asset, as appropriate, only when it is 

probable that future economic benefits associated with the item will 

flow to the Group and the cost of the item can be measured reliably.  
Depreciation on assets is calculated using the straight-line method to 

allocate their net cost, over their estimated useful lives, which is 

usually between 3 to 10 years.
The assets’ residual values and useful lives are reviewed, and adjusted 

if appropriate, at each balance sheet date.
An asset’s carrying amount is written down immediately to its 

recoverable amount if the asset’s carrying amount is greater than its 

estimated recoverable amount (refer to Note 1(I)).
Gains and losses on disposals are determined by comparing proceeds 

with carrying amounts and are included in profit or loss.  

(R) INTANGIBLE ASSETS

Goodwill

Goodwill is measured as described in Note 1(H). Goodwill on 

acquisitions of subsidiaries is included in intangible assets. Goodwill is 

not amortised but it is tested for impairment annually, or more 

frequently if events or changes in circumstances indicate that it might 

be impaired, and is carried at cost less accumulated impairment 

losses. Gains and losses on the disposal of an entity include the 

carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of 

impairment testing. The allocation is made to those cash-generating 

units that are expected to benefit from the business combination in 

which the goodwill arose, identified according to operating segments. 

Brandnames 

The Group recognises brandnames that are acquired as part of a 

business combination or that are specifically acquired from a vendor.  

The Group does not recognise internally generated brandnames.  

Brandnames are initially recognised at fair value, if acquired as part of 

a business combination, or at cost, if specifically acquired from a 

vendor.  For brandnames specifically acquired from a vendor and held 

at cost, any subsequent adjustments arising from a contingent 

consideration arrangement associated with the brand acquisition are 

reflected in the carrying value of the relevant brandname. Subsequent 

to initial recognition, brandnames are recognised at cost less 

accumulated impairment losses.

The major brandnames of the Group, have been, in some cases, in 

existence for more than 50 years and continue to be in active use.  The 

brandnames are utilised predominately on consumer products which 

do not suffer from technical obsolescence.
The carrying amount of brandnames are not amortised as the 

Directors are of the view that the brandnames held have an indefinite 

useful life.
Brandnames are tested individually for impairment annually, or more 

frequently if events or changes in circumstances indicate that they 

might be impaired.  The recoverable amount of a brandname is 

determined based on the higher of value-in-use or fair value less costs 

to sell.

IT development and software

Costs incurred in developing products or systems and costs incurred in 

acquiring software and licenses that will contribute to future period 

financial benefits through revenue generation and/or cost reduction 

are capitalised to software and systems.  Costs capitalised include 

external direct costs of materials and service, direct payroll and payroll 

related costs of employees’ time spent on the project.  Amortisation is 

calculated on a straight-line basis generally over three to five years.
IT development costs include only those costs directly attributable to 

the development phase and are only recognised where the Group has 

an intention and ability to use the asset.

(S) TRADE AND OTHER PAYABLES

These amounts represent liabilities for goods and services provided to 

the Group prior to the end of the financial year which remain unpaid.  

These amounts are unsecured and are normally settled within 60 days 

of recognition. Trade and other payables are presented as current 

liabilities unless payment is not due within 12 months after the reporting 

period. They are initially recognised at fair value and are subsequently 

measured at amortised cost using the effective interest method.

(T) PROVISIONS

Provisions are recognised when the Group has a present legal or 

constructive obligation as a result of past events, it is probable that an 

outflow of resources will be required to settle the obligation, and the 

amount has been reliably estimated.  Provisions are not recognised for 

future operating losses.  Provisions are measured at the present value 

of management’s best estimate of the expenditure required to settle 

the present obligation at the end of the reporting period.
Cost of products and services provided under warranty is expensed as 

incurred. The company provides for warranties based on history of 

claims and management’s best estimate of expected claims.

(U) EMPLOYEE BENEFITS

Short-term obligations

Liabilities for wages and salaries, including annual leave expected to 

be settled within 12 months after the end of the period in which the 

employees render the related service are recognised in respect of 

employees’ services up to the end of the reporting period and are 

measured at the amounts expected to be paid when the liabilities are 

settled.  The liability for annual leave is recognised in the provision for 

employee benefits.  All other short-term employee benefit obligations 

are presented as payables.