For the three months ended 31 March 2013 

## 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 

## (c) Foreign currency translation 

(i) Functional and presentation currency 

The consolidated financial statements are presented in Australian dollars, which is the functional and presentation currency of Australian Agricultural Company Limited and all its subsidiaries� 

(ii) Transactions and balances 

Transactions in foreign currencies are converted into Australian dollars by applying the exchange rates applicable at the date of the transactions� 

Amounts payable and receivable in foreign currencies are converted into Australian dollars at the exchange rate ruling at the reporting date� All differences arising on settlement or translation of amounts payable and receivable in foreign currencies are taken to the statement of profit and loss� 

## (d) Cash and cash equivalents 

Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value� 

For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts� Bank overdrafts are included within interest-bearing loans and borrowings in current liabilities on the statement of financial position� 

## (e) Trade and other receivables 

Trade and other receivables are considered financial assets� They are recognised initially at the fair value of the amounts to be received and are subsequently measured at amortised cost using the effective interest method, less an allowance for doubtful debts� These financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and we have transferred substantially all the risks and rewards of ownership� 

We review the collectability of trade receivables on an ongoing basis at an operating unit level� Individual debts that are known to be uncollectible are written off when identified� An allowance for doubtful debts is recognised to reduce the carrying amount of trade receivables when there is objective evidence that we will not be able to collect the receivable� Financial difficulties of the debtor, default payments or debts significantly overdue are considered indicators that the trade receivable may not be recoverable� The amount of the allowance for doubtful debts is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate� Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial� 

The allowance for doubtful debts is recognised in the income statement within administration costs� When a trade receivable for which an allowance for doubtful debts had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account� Subsequent recoveries of amounts previously written off are credited against administration costs� 

## (f) Inventories and consumables 

Inventories and consumables held for use in our operations are valued at the lower of cost and net realisable value� Cost is determined on the average cost basis and comprises the cost of purchase including transport cost� 

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale 

