FINANCIAL REPORTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2009
continued
Note 1. Summary of significant accounting policies
(continued)
(c) Revenue recognition
(i) Rent
Rental income is brought to account on a straight-line basis over the
lease term for leases with fixed rent review clauses. In all other
circumstances rental income is brought to account on an accruals
basis. If not received at balance date, rental income is reflected in the
Balance Sheets as a receivable. Recoverability of receivables is
reviewed on an ongoing basis. Debts which are known to be not
collectable are written off.
(ii) Management fee revenue
Management fees are brought to account on an accruals basis, and if
not received at the balance date, are reflected in the Balance Sheets as
a receivable.
(iii) Interest revenue
Interest income is brought to account on an accruals basis using the
effective interest rate method and, if not received at balance date, is
reflected in the Balance Sheets as a receivable.
(iv) Dividends and distribution revenue
Income from dividends and distributions are recognised when declared.
Amounts not received at balance date are included as a receivable in
the Balance Sheets.
(d) Expenses
Expenses are brought to account on an accruals basis and, if not paid
at balance date, are reflected in the Balance Sheets as a payable.
(i) Property expenses
Property expenses include rates, taxes and other property outgoings
incurred in relation to investment properties and property, plant and
equipment where such expenses are the responsibility of the Trusts.
(ii) Borrowing costs
Borrowing costs include interest, amortisation of discounts or premiums
relating to borrowings, amortisation or ancillary costs incurred in
connection with arrangement of borrowings and foreign exchange
losses net of hedged amounts on borrowings, including trade creditors
and lease finance charges. Borrowing costs are expensed as incurred
unless they relate to qualifying assets.
Qualifying assets are assets which take more than 12 months to get
ready for their intended use or sale. In these circumstances, borrowing
costs are capitalised to the cost of the asset during the period of time
that is required to complete and prepare the asset for its intended use
or sale. Where funds are borrowed generally, borrowing costs are
capitalised using a weighted average capitalisation rate.
(e) Derivatives and other financial instruments
(i) Derivatives
The Trusts’ activities expose it to a variety of financial risks including
foreign exchange risk and interest rate risk. Accordingly, the Trust
enters into various derivative financial instruments such as interest rate
swaps, cross currency swaps and foreign exchange contracts to
manage its exposure to certain risks. Written policies and limits are
approved by the Board of Directors of the Responsible Entity, in relation
to the use of financial instruments to manage financial risks.
The Responsible Entity continually reviews the Trusts’ exposures and
updates its treasury policies and procedures. The Trust does not trade
in derivative instruments for speculative purposes. Even though
derivative financial instruments are entered into for the purpose of
providing the Trust with an economic hedge, the Trusts’ have elected
not to apply hedge accounting under AASB 139: Financial Instruments:
Recognition and Measurement for interest rate swaps and foreign
exchange contracts. Accordingly, derivatives including interest rate
swaps, interest rate component of cross currency swaps and foreign
exchange contracts, are measured at fair value with any changes in fair
value recognised in the Income Statements.
(ii) Embedded derivatives
Derivatives embedded in other financial instruments or other host
contracts are treated as separate derivatives when their risks and
characteristics are not closely related to those of host contracts and the
host contracts are not measured at fair value with changes in fair value
recognised in the Income Statements.
(iii) Debt and equity instruments issued by the Trusts
Financial instruments issued by the Trusts are classified as either
liabilities or as equity in accordance with the substance of the
contractual arrangements. Accordingly, ordinary units issued by DDF,
DIT, DOT and DXO are classified as equity.
Interest and distributions are classified as expenses or as distributions
of profit consistent with the Balance Sheet classification of the related
debt or equity instruments.
Transaction costs arising on the issue of equity instruments are
recognised directly in equity (net of tax) as a reduction of the proceeds
of the equity instruments to which the costs relate. Transaction costs
are the costs that are incurred directly in connection with the issue of
those equity instruments and which would not have been incurred had
those instruments not been issued.
(iv) Financial guarantee contracts
Financial guarantee contracts are recognised as a financial liability at
the time the guarantee is issued. The liability is initially measured at fair
value and subsequently at the higher of the amount determined in
accordance with AASB 137: Provisions, Contingent Liabilities and
Contingent Assets and the amount initially recognised less cumulative
amortisation, where appropriate.
The fair value of financial guarantees is determined as the present
value of the difference in the net cash flows between the contractual
payments under the debt instrument and the payments that would be
required without the guarantee, or the estimated amount that would be
payable to a third party for assuming the obligations. Where guarantees
in relation to loans or other payables of subsidiaries or associates are
provided for no compensation, the fair values are accounted for as
contributions and recognised as part of the cost of the investment.
(v) Other financial assets
Loans and other receivables are measured at amortised cost using the
effective interest rate method less impairment.
(f) Goods and services tax/value added tax
Revenues, expenses and capital assets are recognised net of any
amount of Australian/New Zealand/Canadian Goods and Services Tax
(GST) or French and German Value Added Tax (VAT), except where the
amount of GST/VAT incurred is not recoverable.
34 DEXUS PROPERTY GROUP Annual REPORT 2009