Consolidation – subsidiary companies
All companies in which the group, directly or indirectly, has an interest of more than one half of the voting rights or otherwise has the power to exercise control over the operations, are included in the consolidated financial statements in the accepted manner.

The results of subsidiary companies acquired or disposed of during the year are included in the consolidated income statement from or to the date on which effective control was obtained or ceased.

Consolidation – The VenFin Share Trust
The VenFin Share Trust has been consolidated as it is effectively controlled by the Company.

Proportionate consolidation – joint ventures
All jointly controlled ventures are accounted for according to the proportionate consolidation method. In terms of this method, the attributable share of assets, liabilities, income, expenditure and cash flow are included in the consolidated statements. The share of retained income is transferred to non-distributable reserves.

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 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.

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. Leases of assets in terms of which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases are accounted for in normal income in a systematic manner relating to the period of use of the assets concerned.

Leasehold improvements – are stated at cost and written off over the period of the lease or over such lesser period as is considered appropriate.

Land and buildings – are stated at cost, but are valued at open-market value when considered necessary. Buildings are depreciated on a straight-line basis over their expected useful lives.

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

Where rentals representing future cash flows of computer hardware and software that are subject to lease agreements with customers are sold, for no recourse to the group, a disposal is recognised of the component of the asset represented by such rentals.

Where a sale takes place, wherein the group may be held liable for the rental payments of the customer, proceeds received are treated as loans received and the asset is retained on the balance sheet.

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

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.

Other investments – Investments in equity and debt instruments are classified into the following categories, i.e. originated by the group, held-to-maturity and available-for-sale.
 

INVESTMENTS ORIGINATED BY THE GROUP – These investments, which primarily consist of loans, are originated by the group by providing money, goods or services directly to a debtor, are included within non-current assets and are carried at amortised cost using the effective interest rate method.

INVESTMENTS HELD-TO-MATURITY – Investments with fixed maturity that the group has the intent and ability to hold to maturity are classified as investments held-to-maturity and are included within non-current assets. These investments are carried at amortised cost using the effective interest rate method.

INVESTMENTS AVAILABLE-FOR-SALE – Other long-term investments are classified as available-for-sale and are included within non-current assets. These investments are carried at fair value. Unrealised gains and losses arising from changes in the fair value of available-for-sale investments are recognised in non-distributable reserves in the period in which they arise. When available-for-sale investments are either sold or impaired, the accumulated fair value adjustments are realised and included in income.
 

Goodwill – On the acquisition of an investment, fair values at the date of acquisition are attributed to the identifiable separable assets and liabilities acquired.

Goodwill or negative goodwill is the difference between the cost of the investments and the reasonable value of attributable net assets of the subsidiary companies, joint ventures and associated companies at the acquisition dates. Goodwill is reported in the balance sheet as a non-current asset. Any goodwill arising from a business combination for which the agreement date was before 31 March 2004, is amortised using the straight-line method over its estimated useful life, not exceeding twenty years.

With effect from 1 April 2004, VenFin adopted AC 140: Business Combinations. In terms of the provisions of this accounting statement goodwill arising from a business combination for which the agreement date is on or after 31 March 2004, will not be amortised but be carried at cost less accumulated impairment losses.

As from 1 July 2004 all existing goodwill will be treated in accordance with AC 140.

Research and development costs – Research and development costs are recognised as an expense when incurred.

Expenditure on acquired intangible assets is capitalised and amortised using the straight-line method over their useful lives, not exceeding a period of five years. No revaluations are made in respect of internally developed and maintained intangible assets.

The carrying amounts of all intangibles are reviewed annually and written down for any impairment.

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, are accounted for in income together with realised exchange differences on forward exchange contracts.

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.

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

Financial instruments are initially recognised when the group becomes party to the contractual terms of the instruments and are measured at cost, including transaction costs, which is the fair value of the consideration given (financial asset) or received (financial liability). Subsequent to initial recognition, these instruments are measured as set out in the applicable accounting policies.

Financial assets (or a portion thereof) are derecognised when the group realises the rights to the benefits specified in the contract, the rights expire or the group surrenders or otherwise loses control of the contractual rights that comprise the financial asset.

On derecognition, the difference between the carrying amount of the financial asset and proceeds receivable and any prior adjustments to reflect fair value that had been recognised in equity are included in the consolidated income statement.

Financial liabilities (or a portion thereof) are derecognised when the obligation specified in the contract is discharged, cancelled or expired. On derecognition, the difference between the carrying amount of the financial liability, including related unamortised costs and amounts paid for it are included in the consolidated income statement.

The fair value of financial instruments traded in an organised financial market are measured at the applicable quoted prices. The fair value of financial instruments not traded in an organised financial market, is determined using a variety of methods and assumptions that are based on market conditions and risk existing at balance sheet date, including independent appraisals and discounted cash flow methods. Fair values represent an approximation of possible value, which may differ from the value that will finally be realised.

Certain group companies are also parties to financial instruments that reduce exposure to fluctuations in foreign currency exchange rates. Changes in the fair value of these instruments, which mainly comprise forward exchange contracts, as well as other derivative instruments are recorded in income in the period in which they arise, as they do not qualify as hedges.

The carrying amounts of financial assets and liabilities with maturity of less than one year are assumed to approximate their fair value.

Where a legally enforceable right of set-off exists for recognised financial assets and financial liabilities, and there is an intention to settle the liability and realise the asset simultaneously, or to settle on a net basis, all related financial effects are offset.

Defined contribution plan – A certain group company provides a defined contribution plan for the benefit of employees, the assets of which are held in a separate trustee-administered fund. The plan is funded by payments from the employees and the company, taking into account recommendations of independent qualified actuaries.

Contributions in respect of the defined contribution plan is charged to the income statement in the year in which they relate.