## Note 1 – Summary of significant accounting policies 

AGL Energy Limited (Parent Entity) is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange (ASX). 

The financial report includes the consolidated financial statements which comprise the Parent Entity and its subsidiaries (together referred to as the consolidated entity). 

## (a) Statement of compliance 

The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001 , Accounting Standards and Interpretations, and complies with other requirements of the law. 

Accounting Standards include Australian equivalents to International Financial Reporting Standards (A-IFRS). Compliance with A-IFRS ensures that the financial statements and notes of the consolidated entity comply with International Financial Reporting Standards (IFRS). 

The financial report was authorised for issue by the Directors on 25 August 2011. 

## (b) Basis of preparation 

The financial statements have been prepared on the basis of historical cost, except for derivative financial instruments and available-for-sale financial assets, which are measured at fair value. 

The Parent Entity is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order, amounts in the financial report are rounded off to the nearest tenth of a million dollars, unless otherwise indicated. The financial report is presented in Australian dollars, unless otherwise noted. 

The significant accounting policies that have been adopted in the preparation and presentation of the financial report are set out below. 

## (c) Significant accounting judgements, estimates and assumptions 

In the application of the consolidated entity’s accounting policies, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Refer to Note 2 for a discussion of critical judgements in applying the entity’s accounting policies, and key sources of estimation uncertainty. 

## (d) Adoption of new and revised accounting standards 

The following new and revised Accounting Standards and Interpretations have been adopted in the current reporting period. Their adoption has not had any significant impact on the amounts reported in these financial statements but may affect the accounting for future transactions and arrangements. 

–AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 5, 8, 101, 107, 117, 118, 136 and 139] 

–AASB 2009-8 Amendments to Australian Accounting Standards – Group Cash-settled Share-based Payment Transactions [AASB 2] 

– AASB 2009-10 Amendments to Australian Accounting Standards – Classification of Rights Issues  [AASB 132] 

–AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project  [AASB 3, 7, 121, 128, 131, 132 and 139] 

– Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments  and AASB 2009-13 Amendments to Australian Accounting Standards arising from Interpretation 19  [AASB 1] 

## (e) Basis of consolidation 

The consolidated financial statements incorporate the financial statements of the Parent Entity and its subsidiaries (together referred to as the consolidated entity). Subsidiaries are entities controlled by the Parent Entity. Control is achieved where the Parent Entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. 

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition and up to the effective date of disposal, as appropriate. 

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the consolidated entity. 

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. 

Changes in the consolidated entity’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. 

## (f) Business combinations 

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the consolidated entity in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. 

Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments. All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant Standards. Changes in the fair value of contingent consideration classified as equity are not recognised. 

Where a business combination is achieved in stages, the consolidated entity’s previously held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the consolidated entity attains control) and the resulting gain or loss, if any, is recognised in profit or loss. 

