Notes to the financial statements
For the 12 months ended 30 June 2009
- 1. No dividend is proposed in respect of the period.
- 2. The results for the period are derived from continuing activities.
- 3. The calculations of loss per share have been based on the retained loss after taxation for the period and on a weighted average of 71,035,567 ordinary shares in issue during the period.
- 4. The unaudited results have been prepared on a going concern basis and on the basis of the accounting policies adopted in the audited accounts for the year ended 30 June 2008.
- 5. The interim report is unaudited and does not constitute Statutory Accounts as defined in section 240 of the Companies Act 1985. A copy of the Company’s 2008 Statutory Accounts has been filed with the Registrar of Companies. The auditors’ opinion on those Statutory Accounts was qualified and the reasons for qualification remain valid in these accounts.
- 6. The Interim Report for the twelve months to 30 June 2009 was approved by the Directors on 30 December 2009.
- 7.1. BASIS OF PREPARATION OF INTERIM REPORT
Reverse acquisition accounting and IFRS
The Interim financial report has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS) except that an initial decision at the interim stage in 2008 to adopt reverse acquisition accounting has been reversed.
The information for the period ended 30 June 2009 is not audited and does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The 12 month accounts to 30 June 2008 are audited.
The information for the period ended 30 June 2009 is taken from the statutory accounts for the period then ended.
- 7.2. ACCOUNTING POLICIES
- 7.1. BASIS OF PREPARATION OF INTERIM REPORT
Basis of Accounting
The interim financial report has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS) with the exception that the accounts of its subsidiaries have not been consolidated, as explained below.
Basis of consolidation
The adoption of reverse acquisition in our interim accounts to 31 December 2007 has been reversed. This period, that adoption has been reversed and this is consistent with the recently issued annual statements for the ended 30 June 2008.
This results from the fact that our principal operating subsidiary in Australia, Mercator Gold Australia Pty Ltd., has been put into Administration. Obtaining financial information from this company has proved impossible and the Directors do not consider the application of reverse acquisition accounting principles to be appropriate in these circumstances.
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and VAT.
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Company reviews the carrying amounts of its intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Company estimates that recoverable amount of the cash-generated unit to which the asset belongs. An intangible asset with indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair values less costs to sell and value in use. In assessing 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 for which the estimate of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generated unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised by the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a re-valued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
Cash and Cash Equivalents
“Cash and cash equivalents” includes cash on hand, deposits held at call with financial institutions, other short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Trade and other payables represent liabilities for goods and services provided to the Company prior to the period end and which are unpaid. These amounts are unsecured and have 30-60 day payment terms.
Wages and Salaries, Annual Leave and Sick Leave
Liabilities for wages and salaries, including non-monetary benefits are reported at cost or fair value as appropriate to the reward earned. Liabilities for non-accumulating sick leave are recognised when leave is taken and measured at the actual rates paid or payable. Liabilities for wages and salaries are included as part of other Payables and liabilities for annual leave are included as part of Employee Benefit Provisions.
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
The fair value of the liability portion of a convertible bond is determined using a market interest rate for an equivalent non-convertible bond. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option. This is recognised and included in shareholders’ equity, net of income tax effects.
Ordinary shares are classified as equity.
Costs directly attributable to the issue of new shares or options are shown as a deduction from the equity proceeds, net of any income tax benefit. Costs directly attributable to the issue of new shares or options associated with the acquisition of a business are included as part of the purchase consideration.
Goods and Services and Value Added Tax
Revenues, expenses and assets are recognised net of VAT except where VAT incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the VAT is recognised as part of the cost of acquisition of the asset or as part of the expense item.
Receivables and payables are stated with the amount of VAT included. The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.
Cash flows are included in the cash flow statement on a gross basis and the VAT component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of VAT recoverable from, or payable to, the taxation authority.
Share Based Payments
The Company provides benefits to employees (including directors) of the Company in the form of share-based payment transactions, whereby employees render services in exchange for shares or options over shares ("equity-settled transactions").
The fair value of options is recognised as an expense with a corresponding increase in equity (share option reserve). The fair value is measured at grant date and recognised over the period during which the holder becomes unconditionally entitled to the options. Fair value is determined using a Black-Scholes option pricing model. The cumulative expense recognised between grant date and vesting date is adjusted to reflect the directors’ best estimate of the number of options that will ultimately vest because of internal conditions of the options, such as the employees having to remain with the company until vesting date.
Where the terms of options are modified, the expense continues to be recognised from grant date to vesting date as if the terms had never been changed. In addition, at the date of the modification, a further expense is recognised for any increase in fair value of the transaction as a result of the change.
Where options are cancelled, they are treated as if vesting occurred on cancellation and any unrecognised expenses are taken immediately to the income statement. However, if new options are substituted for the cancelled options and designated as a replacement on grant date, the combined impact of the cancellation and replacement options are treated as if they were a modification.