ACCOUNTING POLICIES

The annual financial statements are prepared mainly on the historical cost basis and incorporate the following principal accounting policies which, with the exception of accounting for goodwill, have been consistently applied in accordance with South African Statements of Generally Accepted Accounting Practice and those of Rembrandt for the previous year in all material respects:

(I)

CONSOLIDATION AND EQUITY ACCOUNTING

Preference shares and debentures which are compulsorily convertible, are regarded as part of the permanent equity capital of a company for the purposes of consolidation and equity accounting.

Consolidation – subsidiary companies

All companies which are defined as subsidiary companies are included in the consolidated statements in the usual manner.
            
The results of subsidiary companies acquired or disposed of are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Equity accounting – associated companies

Companies which are not subsidiaries, but in which a long-term interest is held and over whose financial and operating policies a significant influence can be exercised, are accounted for according to the equity method as associated companies. Certain associated companies have year-ends which differ from that of the Company. In such circumstances the results of listed and certain unlisted companies are accounted for from the latest published information and management accounts as at year-end, respectively. The accounting policies of associated companies do not necessarily correspond with those of the group and no adjustments are made therefor. The group's share of retained income is transferred to non-distributable reserves. The group's share of other movements in the reserves of associated companies are accounted for as changes in consolidated non-distributable reserves.

  
The results of associated companies acquired or disposed of are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Goodwill

The goodwill or negative goodwill is the difference between the cost of the investments and the attributable net assets of the subsidiary companies and associated companies at the acquisition dates.

               
Goodwill that occurred prior to 1 April 2000 was written off on consolidation against non-distributable reserves. Goodwill or negative goodwill arising after this date is reported in the balance sheet and amortised using the straight line method over its estimated useful life, not exceeding twenty years. This represents a change in accounting policy. All goodwill arising prior to 1 April 2000 was fully written off against reserves, and therefore the pro forma comparative figures for the year ended 31 March 2000 have not been restated.

(II)

PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION

Capitalised leased assets – assets leased in terms of finance lease agreements are capitalised at their equivalent cash consideration. Depreciation is provided on the straight-line basis over the expected useful lives of the assets. Finance charges are written off over the term of the lease in accordance with the effective interest rate method.

Leasehold improvements – are stated at cost and written off over the periods of the leases.

Machinery, equipment, office equipment and vehicles – are stated at cost and are depreciated on a straight-line basis over their expected useful lives.

Where assets are identified as being impaired, that is when the recoverable amount has declined below its carrying amount, the carrying amount is reduced to reflect the decline in value. Such amounts written off are accounted for in normal income.

(III) 

INTANGIBLE ASSETS

Patents – the costs of patents which are established and developed by the group itself are expensed as incurred. The value thereof is consequently not reflected in the annual financial statements. The costs of patents which have been purchased are written off on a straight-line basis over their expected useful lives, being twenty years.

Research and development costs – research and development costs are written off against income as incurred. Where the asset recognition criteria have been met, development expenditure is capitalised and written off over five years.

(IV)

INVESTMENTS

Associated companies – are stated at cost after adjustment for goodwill. In the consolidated financial statements the share of post-acquisition reserves and retained income, accounted for according to the equity method, is included in the carrying value.

Portfolio investments – are stated at cost less amounts written off for declines in value considered not to be of a temporary nature. Such amounts written off and profits and losses on realisation, are accounted for in normal income.

(V)

INVENTORIES

Inventories are stated at the lower of cost or net realisable value. The basis of determining cost is the first-in-first-out method. Where applicable, provision is made for slow-moving and redundant inventories. Work in progress and finished goods include direct costs and an appropriate allocation of manufacturing overheads.

(VI)

TAXATION

Deferred taxation is provided at current rates using the balance sheet liability method. Full provision is made for all temporary differences between the taxation base of an asset or liability and its balance sheet carrying amount. No deferred tax liability is recognised in those circumstances where the initial recognition of an asset or liability has no impact on accounting profit or taxable income. Assets are not raised in respect of deferred taxation on assessed losses, unless it is probable that future taxable profits will be available against which the deferred taxation asset can be realised in the foreseeable future.

Secondary taxation on companies is provided in respect of expected dividend payments, net of dividends received or receivable and is recognised as a taxation charge for the year.

(VII)   

FOREIGN CURRENCIES

Transactions in foreign currencies are accounted for at the rates of exchange ruling on the dates of the transactions. Foreign currency monetary items at year-end are translated to SA rand at the rates of exchange ruling at that date. Exchange differences that arise as a result thereof and on forward exchange contracts, are accounted for in income. Assets, liabilities and reserves of foreign entities at year-end are translated to SA rand at the rates of exchange ruling at that date. Operating results of foreign subsidiaries and income of foreign associated companies are translated to SA rand at the average of the exchange rates prevailing during the year for each of the currencies concerned. Differences arising on translation are accounted for in reserves as exchange rate adjustments.

(VIII)  

FINANCIAL INSTRUMENTS

Financial instruments include those carried on the balance sheet and off-balance sheet instruments.

               
Financial instruments carried on the balance sheet include cash and cash equivalents, investments, trade and other receivables, trade and other payables, provisions, leases and borrowings.

             
Certain group companies are also parties to financial instruments that reduce exposure to fluctuations in foreign currency exchange rates. These instruments, which mainly comprise forward exchange contracts, are not recognised in the financial statements on inception.

             
Fair values and the recognition methods of the different financial instruments are disclosed in the notes to the financial statements. Fair values represent an approximation of possible value, which may differ from the value that will finally be realised.

               
Where the redemption of loans is provided for by means of investments in financial instruments which allow for the contractual right of set-off against the loan and it is expected that the loan will be settled in this way, the related balance sheet items are setoff against one another.

(IX)

PROVISIONS

Provisions are recognised when the group has a present legal or constructive obligation arising from past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

             
Provision for warranties on products is made for all products still under warranty at the balance sheet date. This provision is calculated based on service history.

(X)

CASH AND CASH EQUIVALENTS

For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, and investments in money market instruments, net of bank overdrafts. In the balance sheet, bank overdrafts are included in short-term interest bearing borrowings.

(XI)

REVENUE RECOGNITION

The sale of goods is recognised when the significant risks and rewards of ownership of the goods have been transferred. Revenue arising from services is recognised when the service is rendered. Interest is recognised on a time proportion basis (taking into account the principal amount outstanding, the effective rate and the period), unless collectibility is in doubt. Dividends are recognised when the right to receive payment is established.

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