McConnell Dowell 2018 Annual Review

14 1. Accounting Policies (continued) CONTRACTS IN PROGRESS AND OTHER RECEIVABLES Contracts in progress and contract receivables, are carried at cost, plus profit recognised, less billings and recognised losses at the reporting date. Contract costs include costs that relate directly to the contract as a result of contract activity, and those costs that can be allocated to the contract together with any other costs which are specifically chargeable to the customer in terms of the contract. Progress billings not received are included in contract debtors. Where progress billings exceed the aggregate of costs, plus profit, less losses, the net amounts are shown as payables. Contracting profit or loss recognition Profit is recognised on an individual contract basis using the percentage of completion method, measured by the proportion that costs incurred to date bear to the estimated total costs of the contract, and management’s judgement of the contract progress and outstanding risks. Where a loss is anticipated on any particular contract, provision is made immediately in full for the estimated final contract loss. DERIVATIVE FINANCIAL INSTRUMENTS The Group uses derivative financial instruments (including forward currency contracts) to hedge its risks associated with foreign currency fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to fair value. The fair values of derivatives are determined using a valuation technique based on cash flows discounted to present value using current market rates. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Any gains or losses arising from changes in the fair value of derivatives, except for those that qualify as cash flow hedges, are taken directly to profit or loss for the year. The fair values of forward currency contracts are calculated by reference to current forward exchange rates for contracts with similar maturity profiles. INVESTMENTS IN ASSOCIATES The Group’s investment in its associates is accounted for using the equity method of accounting in the consolidated financial statements and at cost in the parent. The associates are entities over which the Group has significant influence. The Group generally deems they have significant influence if they have over 20% of the voting rights. Under the equity method, investments in associates are carried in the statement of financial position at cost plus post acquisition changes in the Group’s share of net assets of the associates. Goodwill relating to an associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The Group’s share of its associates’ profits or losses is recognised in the statement of profit or loss, and its share of movements in reserves is recognised in reserves. The cumulative movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the parent entity’s statement of profit or loss as a component of other income, while in the consolidated financial statements they reduce the carrying amount of the investment. After application of the equity method the Group determines whether it is necessary to recognise an additional impairment loss on the Group’s investment in its associate. The Group determines at each reporting date whether there is any objective evidence that the investment in associate is impaired. If this is the case the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the statement of profit or loss. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long-term receivables and loans, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The associates’ accounting policies conform to those used by the Group for like transactions and events in similar circumstances. INTEREST IN JOINT ARRANGEMENTS A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. When a Group entity undertakes its activities under joint operation, the Group entity as a joint operator recognises in relation to its interest in a joint operation, its: • Assets, including its share of any assets held jointly • Liabilities, including its share of any liabilities incurred jointly • Revenue from its share of the output arising from the joint operation • Share of the revenue from the output by the joint operation, and • Expenses, including its share of any expenses incurred jointly The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the standards applicable to the particular assets, liabilities, revenues and expenses. When a Group entity transacts with a joint operation in which a group entity is a joint operator (such as a sale or contribution of assets), the Group is considered to be conducting the transaction with the other parties to the joint operation, and gains and losses resulting from the transactions are recognised in the Group’s consolidated financial statements only to the extent of the other parties’ interests in the joint operation. When a group entity transacts with a joint operation in which a group entity is a joint operator (such as a Notes to the Annual Financial Statements (continued) For the year ended 30 June 2018