The consolidated
financial statements have been prepared in accordance
with International Financial Reporting Standards
(IFRS) and its interpretations adopted by the
International Accounting Standards Board (IASB).
These are the Group’s first consolidated
financial statements prepared in terms of IFRS.
IFRS 1, “First time adoption of International
Financial Reporting Standards”, has
been applied.
An explanation of how the transition to IFRS has
affected the reported financial position, financial
performance and cash flows is provided in note
39 of the Group financial statements and note
16 of the Company financial statements.
1.
Basis of preparation
The consolidated financial
statements are prepared on the historical
cost basis except that derivative financial
instruments, financial instruments held
for trading and financial instruments classified
as available for sale are stated at their
fair value.
Non-current assets and disposal groups held
for sale are stated at the lower of carrying
amount and fair value less costs to sell.
The preparation of financial statements
in conformity with IFRS requires management
to make judgements, estimates and assumptions
that affect the application of policies
and reported amounts of assets and liabilities,
income and expenses. Although estimates
and associated assumptions are based on
historical experience and various other
factors that are believed to be reasonable
under the circumstances (the results of
which form the basis of making the judgements
about carrying values of assets and liabilities
that are not readily apparent from other
sources), the actual outcome may differ
from these estimates.
The estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in
the period in which the estimate is revised,
if the revision affects only that period,
or in the period of the revision and future
periods if the revision affects both current
and future periods.
Judgements made in the application of IFRS
that have had an effect on the financial
statements and estimates with a risk of
adjustment in the next year are discussed
in note 37.
The accounting policies set out below have
been applied consistently to all periods
presented in these consolidated financial
statements and in preparing an opening IFRS
balance sheet at July 1 2004 for the purposes
of the transition to IFRS.
The accounting policies have been applied
consistently by Group entities.
2.
Basis of consolidation
The consolidated financial
statements include the financial statements
of the Company and its subsidiaries. Subsidiaries
are entities controlled by the Company.
Control exists when the Company has the
power, directly or indirectly, to govern
the financial and operating policies of
an entity so as to obtain benefits from
its activities. In assessing control, potential
voting rights that presently are exercisable
or convertible are taken into account. Operating
results of businesses acquired or disposed
of during the year are included from or
to the effective date of acquisition or
disposal being the date that control commences
until the date control ceases. The assets
and liabilities of companies acquired are
assessed and included in the balance sheet
at their estimated fair values to the Group
at acquisition date.
Joint ventures are those entities over whose
activities the Group has joint control,
established by contractual agreement. The
Group’s interests in joint ventures
are accounted for using the proportionate
consolidation method and its shares of the
underlying assets, liabilities, income,
expenditure and cash flow are included in
the consolidated financial statements on
a line-by-line basis from the date that
joint control commences until the date joint
control ceases.
Inter-group transactions and balances are
eliminated on consolidation. Unrealised
gains arising from transactions with jointly
controlled entities are eliminated to the
extent of the Group’s interest in
the entity. Unrealised losses are eliminated
in the same way as unrealised gains, but
only to the extent that there is no evidence
of impairment.
The Company carries its investments in subsidiaries
and joint ventures at cost less accumulated
impairment losses.
3.
Revenue
Revenue comprises amounts
invoiced to customers for goods and services
and includes finance charges, insurance
premiums, gross billings, commissions related
to clearing and forwarding transactions
and excludes value added tax.
4.
Revenue recognition
Dividends are recognised
when the right to receive payment is established.
Interest is recognised on a time proportion
basis, taking account of the principal outstanding
and the effective rate over the period to
maturity, when it is determined that such
income will accrue to the Group.
The sale of goods is recognised when significant
risks and rewards of ownership of the goods
are transferred to the buyer.
Revenue from services rendered is recognised
in the income statement in proportion to
the stage of completion of the transaction
at the balance sheet date. The stage of
completion is assessed by reference to the
terms of the contracts.
Revenue relating to banking activities consists
primarily of margins earned on the sale
of foreign currency notes and coins, foreign
exchange products and general commissions
and transaction fees and is recognised when
it is earned. Net profits on revaluation
of foreign currency denominated assets and
liabilities are also included in revenue.
Profits and losses from full maintenance
motor contracts are recognised on termination
of individual contracts. Provision is made
for known losses during the contract period
on an individual contract basis.
Insurance premiums are stated before deducting
re-insurances and commissions, and are accounted
for when they become due.
5.
Non-current assets
held for sale and discontinued operations
Immediately before classification
as assets held for sale, the measurement
of the assets (and all assets and liabilities
in a disposal group) is brought up-to-date
in accordance with applicable IFRS. Then,
on initial classification as assets held
for sale, non-current assets and disposal
groups are recognised at the lower of the
carrying amounts and fair value less costs
to sell.
A discontinued operation results from the
sale or abandonment of an operation that
represents a separate major line of business
or geographical area of operations and of
which the assets, net profit or loss and
activities can be distinguished physically,
operationally and for financial reporting
purposes. A subsidiary acquired exclusively
with the view to resale is also classified
as a discontinued operation. Classification
as a discontinued operation occurs upon
disposal or when the operation meets the
criteria to be classified as held for sale,
if earlier.
6.
Distributions
to shareholders
Distributions to shareholders
are accounted for once they have been approved
by the board of directors.
7.
Financing income
and charges
Financing income and
charges comprise interest payable on borrowings
calculated using the effective interest
rate method, interest receivable on funds
invested and dividend income on preference
shares. The interest expense component of
finance lease payments is recognised in
the income statement using the effective
interest rate method.
8.
Capitalisation
of expenditure/borrowing costs
Costs that are directly
attributable to qualifying assets are capitalised.
Qualifying assets are those that necessarily
take a substantial period of time to prepare
for their intended use or sale. Capitalisation
continues up to the date that the assets
are substantially complete. Capitalisation
is suspended during extended periods in
which active development is interrupted.
9.
Cash and cash
equivalents
For the purpose of the
cash flow statement, cash and cash equivalents
comprise cash on hand, deposits held on
call with banks net of bank overdrafts,
investment in money market instruments and
variable rate cumulative redeemable preference
shares, all of which are available for use
by the Group unless otherwise stated
10.
Property, plant
and equipment
Property, plant and equipment
are reflected at cost to the Group company
which first acquired them, less accumulated
depreciation and accumulated impairment
losses. The present value of the estimated
cost of dismantling and removing items and
restoring the site in which they are located
is provided for as part of the cost of the
asset. Depreciation is provided for on the
straight-line basis over the estimated useful
lives of the property, plant and equipment
as follows:
Land
Stated
at cost and not depreciated
Buildings
Up
to 50 years
Leasehold
premises
Over
the period of the lease
Plant
and equipment
5
to 20 years
Office
equipment, furniture and fittings
3
to 15 years
Vehicles,
vessels and craft
3
to 10 years
Rental
assets
3
to 5 years
Capitalised
leased assets
The
same basis as owned assets.
Residual values, depreciation
method and useful lives are reassessed annually.
Where parts of an item of property, plant
and equipment have different useful lives,
they are accounted for as separate items
of property, plant and equipment.
The Group recognises in the carrying amount
of an item of property, plant and equipment
the cost of replacing part of such an item
when that cost is incurred if it is probable
that the future economic benefits embodied
with the item will flow to the Group and
the cost of the item can be measured reliably.
All other costs are recognised in the income
statement as an expense when incurred.
11.
Leases
Leases that transfer
substantially all the risks and rewards
of ownership of the underlying asset to
the Group are classified as finance leases.
Assets acquired in terms of finance leases
are capitalised at the lower of fair value
and the present value of the minimum lease
payments at inception of the lease, and
depreciated over the estimated useful life
of the asset. The capital element of future
obligations under the leases is included
as a liability in the balance sheet. Lease
payments are allocated using the effective
interest rate method to determine the lease
finance cost, which is charged against income
over the lease period, and the capital repayment,
which reduces the liability to the lessor.
Leases where the lessor retains the risks
and rewards of ownership of the underlying
asset are classified as operating leases.
Operating leases, which have a fixed determinable
escalation, are charged against income on
a straight-line basis. Leases with contingent
escalations are expensed as and when incurred.
12.
Goodwill
Goodwill represents amounts
arising on acquisition of subsidiaries,
associates and joint ventures. All business
combinations are accounted for by applying
the purchase method. In respect of business
acquisitions that have occurred since March
31 2004, goodwill represents the difference
between the cost of the acquisition and
the fair value of the net identifiable assets
acquired.
In respect of acquisitions prior to this
date, goodwill is included on the basis
of its deemed cost, being cost less accumulated
amortisation at March 31 2004, which represents
the amount recorded under previous South
African Generally Accepted Acounting Practice.
The classification and accounting treatment
of business combinations that occurred prior
to March 31 2004 have not been reconsidered
in preparing the Group’s opening IFRS
balance sheet at July 1 2004.
Subject to the aforegoing, goodwill is stated
at deemed cost or cost less any accumulated
impairment losses. Goodwill is allocated
to cash-generating units and is tested annually
for impairment. In respect of associates,
the carrying amount of goodwill is included
in the carrying amount of the investment
in the associate.
Negative goodwill arising on an acquisition
is recognised directly in the income statement.
13.
Intangible assets
Software development
costs are capitalised and are stated at
cost less accumulated amortisation and accumulated
impairment losses.
Other intangible assets that are acquired
by the Group are stated at cost less accumulated
amortisation and impairment losses.
Expenditure on research, internally generated
goodwill and brands is recognised in the
income statement as an expense as incurred.
Subsequent expenditure on capitalised intangible
assets is capitalised only when it increases
the future economic benefits embodied in
the specific asset to which it relates.
All other expenditure is expensed as incurred.
Amortisation is charged to the income statement
on a straight-line basis over the estimated
useful lives of intangible assets unless
such lives are indefinite. Intangible assets
with an indefinite useful life are systematically
tested for impairment at each balance sheet
date. Other intangible assets are amortised
from the date they are available for use.
The estimated useful lives are as follows:
Patents,
trademarks, tradenames and other intangibles
3
to 12 years
Computer
software
3
to 5 years
14.
Impairment of
assets
The carrying value of
assets is reviewed at each balance sheet
date to assess whether there is any indication
of impairment. If any such indication exists,
the recoverable amount of the asset is estimated.
Where the carrying value exceeds the estimated
recoverable amount, such assets are written
down to their recoverable amount.
The recoverable amount of cash-generating
units to which goodwill is allocated is
estimated annually on March 31 each year.
For assets that have an indefinite useful
life and intangible assets that are not
yet available for use, the recoverable amount
is estimated at each balance sheet date.
Impairment losses are recognised whenever
the carrying amount of the asset or a cash-generating
unit exceeds its recoverable amount. Impairment
losses are recognised in the income statement.
Impairment losses recognised in respect
of cash-generating units are allocated first
to reduce the carrying amount of any goodwill
allocated to cash-generating units and then
to reduce the carrying amount of the other
assets in the unit on a pro rata basis.
Goodwill and indefinite-life intangible
assets were tested for impairment at July
1 2004, the date of transition to
IFRS, even though no indication of impairment
existed.
When a decline in the fair value of an available
for sale financial asset has been recognised
directly in equity and there is objective
evidence that the asset is impaired, the
cumulative loss that had been recognised
directly in equity is recognised in the
income statement even though the financial
asset has not been derecognised. The amount
of the cumulative loss that is recognised
in the income statement is the difference
between the acquisition cost and current
fair value, less any impairment loss on
that financial asset previously recognised
in the income statement.
The recoverable amount of the Group’s
investments in held to maturity securities
and receivables carried at amortised cost
is calculated as the present value of estimated
future cash flows, discounted at the original
effective interest rate (the effective interest
rate is computed on initial recognition
of these financial assets). Receivables
with a short duration are not discounted.
The recoverable amount of other assets is
the greater of their fair value less costs
to sell and value in use. In assessing their
value in use, the estimated future cash
flows are discounted to their present value
using a pre-tax discount rate that reflects
current market assessments of the time value
of money and the risks specific to the asset.
An impairment loss in respect of a held
to maturity security or receivable carried
at amortised cost is reversed if the subsequent
increase in recoverable amount can be related
objectively to an event occurring after
the impairment loss was recognised.
An impairment loss in respect of an investment
in an equity instrument classified as available
for sale is not reversed through the income
statement. If the fair value of a debt instrument
classified as available for sale increases
and the increase can be objectively related
to an event occurring after the impairment
loss was recognised in the income statement,
the impairment loss is reversed, with the
amount of the reversal recognised in the
income statement.
Impairment losses in respect of goodwill
are not reversed.
In respect of other assets, impairment losses
are reversed if there has been a change
in the estimates used to determine the recoverable
amount.
Impairment losses are reversed only to the
extent that the asset’s carrying amount
does not exceed the carrying amount that
would have been determined, net of depreciation
or amortisation, if no impairment loss had
been recognised.
15.
Taxation
Current taxation comprises
tax payable calculated on the basis of the
expected taxable income for the year, using
the tax rates enacted or substantially enacted
at the balance sheet date, and any adjustment
of tax payable for previous years.
Deferred taxation is provided on the balance
sheet liability method based on temporary
differences between the tax base of an asset
or liability and its balance sheet carrying
amount. Temporary differences are differences
between the carrying amount of assets and
liabilities for financial reporting purposes
and their tax base. 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 or substantively enacted at
the balance sheet date. The following temporary
differences are not provided for: goodwill
not deductible for tax purposes, the initial
recognition of assets or liabilities that
affect neither accounting nor taxable profit,
and differences relating to investments
in subsidiaries to the extent that they
will probably not reverse in the foreseeable
future. Deferred taxation is charged to
the income statement except to the extent
that it relates to a transaction that is
recognised directly in equity, or a business
combination that is an acquisition. The
effects on deferred taxation of any changes
in tax rates is recognised in the income
statement, except to the extent that it
relates to items previously charged or credited
directly to equity.
A deferred tax asset is recognised to the
extent that it is probable that future taxable
profits will be available against which
the associated unused tax losses and deductible
temporary differences can be utilised. Deferred
tax assets are reduced to the extent that
it is no longer probable that the related
tax benefit will be realised.
Secondary taxation on companies is accounted
for as a tax charge in the income statement
as incurred.
16.
Associates
An associate is a company
over which the Group has the ability to
exercise significant influence over the
financial and operating policies.
The equity method of accounting for
associates is adopted in the Group financial
statements. In applying the equity method,
account is taken of the Group’s share
of accumulated retained earnings and movements
in reserves from the effective dates on
which the companies became associates and
up to the effective dates of disposal.
The Company accounts for associates at cost
less any accumulated impairment losses.
Goodwill inherent in the cost of an associate
is accounted for in accordance with the
Group’s accounting policy for goodwill.
This goodwill has been included in the carrying
value of associates.
17.
Foreign operations
Assets and liabilities
of foreign operations, including goodwill
and fair value adjustments arising on consolidation,
are translated into South African rand at
rates of exchange ruling at the balance
sheet date. Income, expenditure and cash
flow items are translated into South African
rand at rates approximating to the foreign
exchange rates ruling at the dates of the
transactions. Foreign exchange differences
arising on translation are recognised directly
in equity as a foreign currency translation
reserve.
The revenues and expenses of foreign operations
in hyperinflationary economies are translated
to South African rand at the foreign exchange
rates ruling at the balance sheet date.
Foreign exchange differences arising on
re-translation are recognised directly in
a separate component of equity.
Acquisitions and disposals of foreign operations
are accounted for at the rate ruling on
the date of the transaction.
In respect of all foreign operations, any
differences that arose before July 1
2004, the date of transition to IFRS, have
been transferred to retained income.
18.
Financial instruments/investments
Financial instruments
are accounted for on transaction date
and are initially measured at fair value,
including transaction costs. The subsequent
measurement of these instruments is dealt
with as follows:
Listed and unlisted investments are classified
as held for trading financial assets or
available for sale financial assets.
Held for trading financial assets are
stated at fair value, with any resultant
gain or loss being recognised in the income
statement.
Financial instruments classified as available
for sale financial assets are carried
at fair value with any resultant gain
or loss being recognised directly in equity,
except for impairment losses and, in the
case of monetary items such as debt securities,
foreign exchange gains and losses. When
these investments are derecognised, the
cumulative gain or loss previously recognised
directly in equity is recognised in profit
or loss. Where these investments are interest
bearing, interest calculated using the
effective interest method is recognised
in profit or loss.
Fair value of listed investments is calculated
by reference to stock exchange quoted
selling prices at the close of business
on the balance sheet date. Fair value
of unlisted investments is determined
by using appropriate valuation models.
Investments that meet the criteria for
classification as held to maturity financial
assets are carried at amortised cost.
Financial instruments classified as held
for trading or available for sale investments
are recognised/derecognised by the Group
on the date it commits to purchase/sell
the investments. Securities held to maturity
are recognised/derecognised on the day
they are transferred to/by the Group.
Trade and other receivables originated
by the Group are stated at fair value
less impairment losses.
Cash and cash equivalents are measured
at fair value, based on the relevant exchange
rates at balance sheet date.
Financial liabilities other than derivatives
are recognised at amortised cost using
the effective interest rate method.
Derivative instruments are measured at
fair value.
Gains and losses arising from a change
in the fair value of financial instruments
that are not part of a hedging relationship,
and with the exception of available for
sale financial assets, are included in
the income statement in the period in
which the change arises.
Gains and losses arising from measuring
the hedging instruments relating to a
fair value hedge at fair value are recognised
in the income statement.
Where a derivative financial instrument
is used to economically hedge the foreign
exchange exposure of a recognised financial
asset or liability, no hedge accounting
is applied and any gain or loss on the
hedging instrument is recognised in the
income statement.
Where a derivative is designated as a
cash flow hedge, the effective part of
the gains or losses from re-measuring
the hedging instruments to fair value
are initially recognised directly in equity.
If the hedged firm commitment or forecast
transaction results in the recognition
of a non-financial asset or liability,
the cumulative amount recognised in equity
up to the transaction date is adjusted
against the initial measurement of the
non-financial asset or liability. The
ineffective part of any gain or loss is
recognised in the income statement immediately.
For other cash flow hedges, the cumulative
amount recognised in equity is included
in net profit or loss in the period when
the commitment or forecast transaction
affects profit or loss.
Where the hedging instrument or hedge
relationship is terminated but the hedged
transaction is still expected to occur,
the cumulative unrealised gain or loss
at that point remains in equity and is
recognised in accordance with the aforementioned
policy when the transaction occurs. If
the hedged transaction is no longer expected
to occur, the cumulative unrealised gain
or loss is recognised in the income statement
immediately.
A financial asset is derecognised (or,
where applicable, a part of a financial
asset or a part of a group of similar
financial assets) is derecognised where:
–
the rights to
receive cash flows from the asset
have expired;
–
the Group retains
the right to receive cash flows from
the asset, but has assumed an obligation
to pay them in full without material
delay to a third party under a “pass-through”
arrangement; or
–
the Group has
transferred its rights to receive
cash flows from the asset and either
(a) has transferred substantially
all the risks and rewards of the asset,
or (b) has neither transferred nor
retained substantially all the risks
and rewards of the asset, but has
transferred control of the asset.
Where the Group has transferred its right
to receive cash flows from an asset and
has neither transferred nor retained substantially
all the risks and rewards of the asset
nor transferred control of the asset,
the asset is recognised to the extent
of the Group’s continuing involvement
in the asset. Continuing involvement that
takes the form of a guarantee over the
transferred asset is measured at the lower
of the original carrying amount of the
asset and the maximum amount of consideration
that the Group could be required to repay.
A financial liability is derecognised
when the obligation under the liability
is discharged or cancelled or expires.
Where an existing liability is replaced
by another from the same lender on substantially
different terms, or the terms of an existing
liability are substantially modified,
such an exchange or modification is treated
as a derecognition of the original liability
and the recognition of a new liability,
and the difference in the respective carrying
amounts is recognised in profit and loss.
Financial assets and financial liabilities
are offset and the net amount reported
in the balance sheet when the Group has
a legally enforceable right to set off
the recognised amounts, and intends either
to settle on a net basis, or to realise
the asset and settle the liability simultaneously.
It is the policy of the Group not to trade
in derivative financial instruments for
speculative purposes.
19.
Banking advances
Advances are stated at
amortised cost after the deduction of amounts
that, in the opinion of the directors, are
required as specific and general impairments.
Specific impairments are raised for doubtful
advances, including amounts in respect of
interest not being serviced and after taking
security values into account and are deducted
from advances where the outstanding balance
exceeds the value of the security held.
A general impairment based on historic experience
is raised to cover doubtful advances, which
may not be specifically identified at the
balance sheet date. The specific and general
impairments made during the year are charged
to the income statement.
20.
Vehicle rental
fleet
Vehicle rental fleet
is stated at cost less accumulated depreciation.
Depreciation is provided on a straight-line
basis to write off the cost of the vehicles
to their residual value over their estimated
useful life of between 9 and 12 months.
21.
Inventories
Inventories are stated
at the lower of cost and estimated net realisable
value. Estimated net realisable value is
the estimated selling price in the ordinary
course of business, less the estimated costs
of completion and selling expenses. The
cost of raw materials, finished goods, parts
and accessories is determined on either
the first in, first out or average cost
basis. New vehicles, motorcycles, power
and marine products are stated on an actual
unit cost basis. Used and demonstrator vehicles
are stated at the lower of actual cost or
net realisable value. The cost of manufactured
inventory and work in progress includes
materials and parts, direct labour, other
direct costs and includes an appropriate
portion of overheads, but excludes interest
expense.
Vehicles and vehicle parts purchased in
terms of manufacturers’ standard franchise
agreements or floorplan facilities, are
recognised as assets when received as this
is when significant risks and rewards have
been transferred. This policy is applied
irrespective of the fact that certain agreements
provide that the legal ownership of this
inventory shall remain with the supplier
or floorplan provider until the purchase
price has been paid.
22.
Treasury shares
Shares in the Company,
held by its subsidiary are classified in
the Group’s shareholders’ interest
as treasury shares. These shares are treated
as a deduction from the issued and weighted
average number of shares. The cost price
of the shares is presented as a deduction
from total equity. Distributions received
on treasury shares are eliminated on consolidation.
23.
Foreign currencies
Transactions in foreign
currencies are translated at the rates of
exchange ruling at the transaction date.
Monetary assets and liabilities in foreign
currencies are translated at the rates of
exchange ruling at the balance sheet date.
Translation differences are recognised in
the income statement.
Non-monetary assets and liabilities that
are measured in terms of historical cost
in a foreign currency are translated using
the exchange rate at the date of the transaction.
Non-monetary assets and liabilities denominated
in foreign currencies that are stated at
fair value are translated to South African
rand at foreign exchange rates ruling at
the dates the fair value was determined.
24.
Share-based
payments
The Bidvest Incentive
Scheme grants options to acquire shares
in the Company to executive directors and
staff. The fair value of options granted
is recognised as an employee expense with
a corresponding increase in equity. The
fair value is measured at grant date and
spread over the period during which the
employees become unconditionally entitled
to the options. The fair value of the options
is measured using a binomial method, taking
into account the terms and conditions upon
which the options were granted. The amount
recognised as an expense is adjusted to
reflect the actual number of share options
that vest except where staff are unable
to meet the Scheme’s employment requirements.
25.
Employee benefits
Leave benefits due to
employees are recognised as a liability
in the financial statements.
The Group’s liability for post-retirement
benefits, accruing to past and current employees
in terms of defined benefit schemes, are
calculated actuarially. Where the plan is
funded, the obligation is reduced by the
fair value of the plan assets. Unfunded
obligations are recognised as a liability
in the financial statements.
The Group’s obligation for post-retirement
medical aid, to past and current employees,
is determined actuarially and provided for
in full.
The projected unit credit method is used
to determine the present value of the defined
benefit obligations and the related current
service cost and, where applicable, past
service cost.
Actuarial gains or losses in respect of
defined benefit plans are recognised as
income or expense if the net cumulative
unrecognised actuarial gains and losses
at the end of the previous reporting period
exceed the greater of: –
10% of the present value of the defined
benefit obligation at that date before deducting
plan assets; or
– 10% of the fair value of any
plan assets at that date.
The amount recognised is the excess in terms
of the aforementioned formula, divided by
the expected average remaining working lives
of the employees participating in that plan.
Past service costs are recognised as an
expense on a straight-line basis over the
average period until the benefits become
vested. To the extent that the benefits
have vested, past service costs are recognised
immediately.
Liabilities for employee benefits which
are not expected to be settled within twelve
months are discounted using the market yields,
at the balance sheet date, on high quality
bonds with terms that most closely match
the terms of maturity of the related liabilities.
Contributions to defined contribution pension
plans are recognised as an expense in the
income statement as incurred.
26.
Short-term insurance
Short-term insurance
is provided in terms of benefits under short-term
policies which cover motor, property and
warranty. Premiums are accounted for
as income when they come due, before deducting
commission. Claims expenses are charged
to the income statement as incurred based
on the liability owed to the contract holder
at the date of the claim. A provision for
unearned premiums is created, based on the
24th and 48th methods and actual incidence
of risk, that represents that part of the
current year’s premiums that relate
to risk periods that extend to the following
year. Provision is made on a prudent basis
for the estimated final cost of all claims
that had not been settled on the accounting
date. Provision is also made for claims
arising from events that occurred before
the close of the accounting period, but
which have not been reported to the Company
by that date. A contingency reserve is maintained
at 10% of the net written premiums. The
reserve can be utilised in case of catastrophe,
subject to the approval of the Financial
Services Board. Transfers to this reserve
are reflected in the capital and reserves
note.
27.
Life assurance
Life assurance benefits
are provided in terms of individual credit
life contracts. These contracts are decreasing
term assurance designed to pay outstanding
loans provided by financing houses to purchasers
of motor vehicles. The outstanding loan
is settled (subject to certain limits) following
death or disability of the contract holder.
In addition there is a dread disease, retrenchment
and funeral benefit. Premiums consist of
single and monthly premiums and are recognised
when the insurance risk cover commences.
Premiums are shown before deducting reinsurance
and commission. Claims expenses are charged
to the income statement as incurred based
on the liability owed to the contract holder
at the date of the claim. Policyholder liabilities
under insurance contracts, representing
the liability in respect of unmatured policies,
are valued in terms of the Financial Soundness
Valuation basis contained in Practice Guidance
Note 104.
Contracts entered into by the Group with
reinsurers under which the Group is compensated
for losses on one or more contracts issued
by the Group are classified as reinsurance
contracts held. The benefits to which the
Group is entitled under its reinsurance
contracts are recognised as reinsurance
assets. These assets and liabilities consist
of short-term balances due to and from reinsurers,
as well as longer-term receivables (classified
as reinsurance assets) that are dependent
on the expected claims and benefits arising
under the related reinsurance contracts.
Amounts recoverable from or due to reinsurers
are measured consistently with the amounts
associated with the reinsurance contracts
and in accordance with the terms of each
reinsurance contract. Reinsurance liabilities
are primarily premiums payable and are recognised
as an expense when due. The Group assesses
its reinsurance assets for impairment on
an annual basis. If there is objective evidence
that the reinsurance asset is impaired,
the Group reduces the carrying amount of
the reinsurance asset to its recoverable
amount and recognises the impairment loss
in the income statement. The Group gathers
the objective evidence that a reinsurance
asset is impaired using the same process
adopted for financial assets held at amortised
cost.
28.
Provisions
Provisions are recognised
when the Group has a legal or constructive
obligation as a result of past events, for
which it is probable that an outflow of
economic benefits will occur, and where
a reliable estimate can be made of the amount
of the obligation. Where the effect of discounting
is material, provisions are discounted.
The discount rate used is a pre-tax rate
that reflects current market assessments
of the time value of money and, where appropriate,
the risks specific to the liability.
A provision for restructuring is recognised
when the Group has approved a detailed and
formal restructuring plan, and the restructuring
has either commenced or has been announced
publicly. Future operating costs are not
provided for.
The Group recognises a provision calculated
as the present value of the estimated cost
of dismantling and removing items and restoring
the site in which they are located when
the legal or constructive obligation arises
or when the damage to the site occurs.
A provision for onerous contracts is recognised
when the expected benefits to be derived
by the Group from a contract are lower than
the unavoidable cost of meeting its obligations
under the contract.
29.
Segmental reporting
The principal segments
of the Group have been identified on a primary
basis by the nature of the business and
on a secondary basis by geographic segment.
The basis is representative of the internal
structure for management purposes.
Segmental result includes revenue and expenses
directly relating to a business segment
but excludes interest and taxation. Segmental
trading profit is defined as operating profit
excluding items of a capital nature.
Segment operating assets and liabilities
include property, plant and equipment, investments,
inventories, trade and other receivables,
trade and other payables, banking assets
and liabilities and insurance funds, but
exclude cash and cash equivalents, borrowings,
current taxation and deferred taxation.
Intangibles are allocated to the cash-generating
unit in the segment to which they relate.