## NOTES TO THE FINANCIAL STATEMENTS CONTINUED 

Notes to and forming part of the Consolidated Financial Statements For the period from incorporation to 26 June 2004 

## INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) 02 

The economic entity will be required to prepare financial statements using Australian Standards that comply with IFRS when the economic entity reports in 2006. 

The economic entity has established a project team to monitor and plan for the adoption of IFRS. The project team has been considering developments in IFRS and the likely impact that these standards will have on our financial reports and accounting policies. 

The following areas are those that have been identified as potentially having an impact on the Group’s accounting policies: 

## (a) Goodwill 

Under the Australian equivalent to IFRS 3 Business Combinations, amortisation of goodwill will be prohibited, and will be replaced by annual impairment testing focusing on the cash flows of the related cash generating unit. 

This will result in a change to the current accounting policy, under which goodwill is amortised on a straight line basis over 20 years. 

## (b) Share-based compensation benefits 

Under the Australian equivalent to IFRS 2 Share- based Payments, equity-based compensation to employees will be recognised as an expense over the period between the grant date and the vesting date of the equity instrument. 

## (c) Forward Exchange Contracts 

The Company enters into foreign currency forward exchange contracts in order to minimise the exchange rate risk associated with the purchase of inventory. The forward exchange contract can either be based upon anticipated purchase transactions or firm commitments. Currently, any unrealised gains or losses on foreign currency forward exchange contracts, together with the cost of the contracts, are deferred and recognised in the measurement of the underlying transaction. 

Under the Australian equivalent to IAS 39 Financial Instruments – Recognition and Measurement, gains or losses on the forward exchange contracts will be recognised directly in equity or in inventory or will be offset against any gain or loss on the hedged item in the statement of financial performance, depending on the nature of the contract. 

## (d) Income Tax 

Under the Australian equivalent to IAS 12 Income Taxes, deferred tax balances are determined using the balance sheet method which calculates temporary differences based on the carrying amounts of an entity’s assets and liabilities in the statement of financial position and their associated tax bases. In addition, current and deferred taxes attributable to amounts recognised directly in equity are also recognised directly in equity. 

This will result in a change to the current accounting policy, under which deferred tax balances are determined using the income statement method, items are only tax-effected if they are included in the determination of pre-tax accounting profit or loss and/or taxable income or loss and current and deferred taxes cannot be recognised directly in equity. 

