| The annual financial statements are prepared on the historical
cost basis, unless otherwise indicated, in accordance with South
African Statements of Generally Accepted Accounting Practice, the
requirements of the South African Companies Act 1973, as amended,
and the Listings Requirements of the JSE Limited and incorporate
the following principal accounting policies which, with the exception
of the implementation of the South African Statement of Generally
Accepted Accounting Practice, AC 501: Accounting for secondary taxation
on companies (STC), have been consistently applied with those of
the previous year: |
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(I) |
CONSOLIDATION AND EQUITY ACCOUNTING |
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Consolidation – subsidiary companies |
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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. |
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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 acquired or ceased. |
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Consolidation – The VenFin Share Trust |
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The VenFin Share Trust has been consolidated as it is effectively
controlled by the Company. |
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Proportionate consolidation – joint
ventures |
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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. |
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Equity accounting – associated companies |
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Companies which are neither subsidiaries nor joint ventures, 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 in all circumstances correspond
with those of the group. No adjustments are made for such differences
where it is not practicable. 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. |
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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. |
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(II) |
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION |
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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. |
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Leasehold improvements – are stated at cost and written off
over the period of the lease or over such lesser period as is considered
appropriate. |
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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. |
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Machinery, equipment, office equipment and
vehicles – are
stated at cost and depreciated on a straight-line basis over their
expected useful lives. |
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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. |
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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. |
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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. |
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(III) |
INVESTMENTS |
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Associated companies – are stated at cost. In the consolidated
financial statements the share of post-acquisition reserves and retained
income, accounted for according to the equity method, as well as
goodwill (net of any accumulated impairment losses) identified on
acquisition, is included in the carrying value. |
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Other investments – Investments in equity and debt instruments
are classified into the following categories, i.e. originated by
the group, held-to-maturity, held-for-trading and available-for-sale. |
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Loans originated by the group –These 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. |
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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. |
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Investments held-for-trading – These investments, which include
derivative instruments, are carried at fair value. Realised and unrealised
gains and losses arising from changes in the fair value of held-for-trading
investments are recognised in the income statement in the period
in which they arise. |
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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. |
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All purchases and sales of investments are recognised
at the trade date. |
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Any derivatives embedded in financial instruments
are separated from the host contract when their economic characteristics
and risks are not closely related to those of the host contract and
the host contract is not carried at fair value, with gains and losses
reported in the income statement. |
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(IV) |
INTANGIBLE ASSETS |
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Goodwill – On the acquisition of an investment,
fair values at the date of acquisition are attributed to the identifiable
assets, liabilities and contingent liabilities acquired. |
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Goodwill is the difference between the cost of the
investments and the fair 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 non-current assets. Where, at the date of acquisition, the net
assets of subsidiary companies, joint ventures and associated companies
exceed the cost of the investments, the difference is immediately
accounted for in the income statement. |
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As reported last year, VenFin adopted AC 140: Business
Combinations with effect from 1 April 2004. 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.
Any goodwill arising from a business combination for which the agreement
date was before 31 March 2004, was still amortised during the previous
financial year. |
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As from 1 July 2004 all goodwill is treated in accordance
with AC 140. |
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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. |
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The carrying amounts of all intangibles are reviewed
annually and written down for any impairment. |
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(V) |
INVENTORIES |
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Inventories are stated at the lower of cost or net
realisable value. The basis of determining cost is the first-in first-out
method. Net realisable value is the estimated selling price in the
ordinary course of business, less costs necessary to make the sale.
Work in progress includes direct costs and an appropriate allocation
of direct overhead costs. |
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(VI) |
CONTRACTS IN PROGRESS |
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Contracts in progress include all direct and related
indirect expenditure on contracts and include a proportion of profit
based on the stage of completion of the contract. The stage of completion
of a contract is determined by the lower of costs to date as a proportion
to total estimated costs, and surveys of work performed by project
managers. Contracts in progress include contracts that are complete
but not invoiced at year-end. |
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(VII) |
TAXATION |
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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, unless it is probable
that future taxable profits will be available against which the deferred taxation
asset can be realised in the foreseeable future. |
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(VIII) |
FOREIGN CURRENCIES |
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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 exchange differences on forward exchange contracts. |
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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. |
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(IX) |
FINANCIAL INSTRUMENTS |
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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. |
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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 at cost except for investments and derivative instruments
which are measured as set out in the applicable accounting policies. |
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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. |
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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. |
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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. |
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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 risks 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. |
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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 for hedge accounting. |
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The carrying amounts of financial assets and liabilities
with maturity of less than one year are assumed to approximate their
fair value. |
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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. |
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(X) |
PROVISIONS |
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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. |
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(XI) |
EMPLOYEE BENEFITS |
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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. |
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Contributions in respect of the defined contribution
plan is charged to the income statement in the year in which they
relate. |
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(XII) |
CASH AND CASH EQUIVALENTS |
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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. |
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(XIII) |
REVENUE RECOGNITION |
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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 collectability is in doubt. Dividends are recognised when
the right to receive payment is established. |
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(XIV) |
TREASURY SHARES |
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Shares in the Company held by wholly owned group companies
as well as shares held by The VenFin Share Trust are classified as
treasury shares and are held at cost. These shares are treated as
a deduction from the issued number of shares and taken into account
in the calculation of the weighted average number of shares. The
cost price of the shares is deducted from the group’s equity. |
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(XV) |
THE VenFin SHARE SCHEME |
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Any profits or losses that realise from shares being
delivered to participants are recognised directly in equity. |
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Accounting
policies