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CIMIC Group Limited Annual Report 2016 |
Financial Report
Notes to the Consolidated Financial Statements continued
for the 12 months to 31 December 2016
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONTINUED
a) Revenue recognition
Revenue from construction contracting services is recognised using the percentage complete method. Stage of completion is measured by
reference to costs incurred to date as a percentage of estimated total costs for each contract. Where the project result can be reliably
estimated, contract revenue and expenses are recognised in the statement of profit or loss as earned and incurred. Where the project
result cannot be reliably estimated, profits are deferred and the difference between consideration received and expenses is carried forward
as either a contract receivable or contract payable. Once the contract result can be reliably estimated, the profit earned to that point is
recognised immediately.
Revenue from mining contracts and mineral processing is recognised on the basis of the value of work completed.
Property development revenue includes sales of development properties, rental and fee income. Revenue from the sale of property
developments and land sales is recognised when the significant risks and rewards of ownership have been transferred. Rental income is
recognised on a straight line basis over the term of the operating lease. Other property development revenue is recognised as services are
provided.
Other revenue including telecommunications, environmental and utilities services, is recognised as services are provided.
Expected losses on all contracts are recognised in full as soon as they become apparent.
Interest revenue is recognised on an accruals basis.
Dividend income is recognised when the dividend is declared.
b) Finance costs
Finance costs are recognised as expenses in the period in which they are incurred, except where they are included in the costs of qualifying
assets. The capitalisation rate used to determine the amount of finance costs to be capitalised to qualifying assets is the weighted average
interest rate applicable to the entity’s borrowings during the period.
Finance costs include interest on bank overdrafts and short-term and long-term borrowings, amortisation of discounts or premiums relating
to borrowings, amortisation of ancillary costs incurred in connection with the arrangement of borrowings, finance lease charges and certain
exchange differences arising from foreign currency borrowings.
c) Income tax
Income tax expense on the profit or loss for the period comprises current and deferred tax expense. Income tax expense is recognised in
the statement of profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in
equity. Current tax expense is the expected tax payable on the taxable income for the period, using tax rates enacted at the reporting date,
and any adjustment to tax payable in respect of previous years.
The Group adopts the statement of financial position liability method to provide for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Taxable temporary differences are not
provided for the initial recognition of goodwill. The amount of deferred tax provided is based on the expected manner of realisation or
settlement of the carrying amount of assets and liabilities, using tax rates enacted at the statement of financial position date.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable
amounts will be available to utilise those temporary differences and losses. The Company is the head entity in the Tax Consolidated Group
comprising the Australian wholly-owned subsidiaries. The head entity recognises all of the current tax assets and liabilities and deferred
tax assets in respect of tax losses of the Tax Consolidated Group (after elimination of intra-group transactions). Deferred tax assets and
liabilities in respect of temporary differences are recognised in the subsidiaries’ financial statements.
The Tax Consolidated Group has entered into a tax funding agreement that requires wholly-owned subsidiaries to make contributions to
the head entity for current tax assets and liabilities occurring after the implementation of tax consolidation. Under the tax funding
agreement, the contributions are calculated using the “group allocation” approach so that the contributions are equivalent to the current
tax balances generated by transactions entered into by wholly-owned subsidiaries. The contributions are payable as set out in the
agreement and reflect the timing of the head entity’s obligations to make payments for tax liabilities to the relevant tax authorities. The
assets and liabilities arising under the tax funding agreement are recognised as intercompany assets and liabilities with a consequential
adjustment to current tax assets.
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