## Notes to the financial statements (cont’d) 

For the year ended 30 June 2012 

## (ii) Onerous contracts 

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. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract. 

## (k) Contract classification 

The accounting treatment of certain transactions varies depending on the nature of the contract underlying the transaction. The major contract classifications are insurance contracts and investment contracts. 

## (i) Insurance contracts 

Insurance contracts are those containing significant insurance risk at the inception of the contract, or those where at the inception of the contract there is a scenario with commercial substance where the level of insurance risk may be significant. The significance of insurance risk is dependent on both the probability of an insured event and the magnitude of its potential effect. 

Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during the period. 

## (ii) Investment contracts 

Contracts not considered insurance contracts are classified as investment contracts. The accounting treatment of investment contracts depends on whether the investment has a discretionary participation feature (‘DPF’). A DPF represents a contractual right to receive, as a supplement to guaranteed benefits, additional benefits that are: 

• likely to be a significant portion of the total benefits; 

• distributed at the discretion of the insurer; and 

• are based on the performance of a specified pool of assets. 

Deposits collected and benefits paid under investment contracts with DPF are accounted for through profit or loss. The gross change in the liability to these policyholders for the period, which includes any participating benefits vested in policyholders and any undistributed surplus attributed to policyholders, is also recognised in profit or loss. 

Deposits collected and withdrawals processed for investment contracts without DPF are accounted for directly through the statement of financial position as a movement in the 

investment contract liability. Distributions on these contracts are charged to profit or loss as an expense. 

Where contracts contain both an investment component and an insurance component and the deposit component can be separately measured, the underlying amounts are unbundled. Premiums relating to the insurance component are accounted for through profit or loss and the investment component is accounted for as a deposit through the statement of financial position as described above. 

## (l) Revenue 

Revenue is measured at the fair value of the consideration received or receivable. 

## (i) Management and service fees revenue 

The Group provide management services to unit trusts and funds operated by the Group at normal commercial rates. Management and service fees earned from the unit trusts and funds are calculated based on an agreed percentage of the respective funds under management or administration as disclosed in the respective product disclosure statements, and are recognised on an accruals basis. 

Management and service fees revenue from the provision of financial advisory services together with revenue from the rendering of services are recognised at the time the service is provided. 

## (ii) Other fee revenue and stockbroking revenue 

Other fee revenue and stockbroking revenue from the rendering of services are recognised at the time the service is provided. 

## (iii) Upfront service fees 

Upfront service fees are recorded as deferred revenue and recognised on a straight-line basis over a period that is reflective of the continued service provided. The period of amortisation is based on historical experience and varies between products on offer. The current deferral period is between 5 and 7 years. These upfront service fees are recorded as a deferred revenue liability within other liabilities in the consolidated statement of financial position. 

## (iv) Premium revenue 

Premium revenue is earned on life insurance products. Life insurance premiums with no due date are recognised on a cash received basis. Premiums with regular due dates are recognised as revenue on a basis which is consistent with the Actuary’s valuation of liabilities. Deposit components of life insurance contracts are not revenue and are treated as movements in life insurance contract liabilities. 

