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82Petra Diamonds Limited Annual Report and Accounts 2012Company AccountsGroup AccountsCorporate GovernanceOperational ReviewBusiness ReviewDiscover Petra Diamonds1. Accounting policies continued1.2 New standards and interpretations applied continuedThe Group is currently assessing the impact of these standards on the financial statements. Those anticipated to be significant to the Group are as follows:IFRS 11 - The principle in IFRS 11 is that a party to a joint arrangement recognises its rights and obligations arising from the arrangement rather than focusing on the legal form. The application of the principle results in the following:$$where the parties have rights to the assets and obligations for the liabilities relating to the arrangement, they are parties to joint operations. A joint operator accounts for assets, liabilities and corresponding revenues and expenses arising from the arrangement; and$$where the parties have rights to the net assets of the arrangement, they are parties to a joint venture. A joint venturer accounts for an investment in the arrangement using the equity method under IAS 28 "Investments in Associates".The Group does not currently have any joint ventures within the scope of IFRS 11 but this standard may be relevant going forward for any new mines.IFRS 12 - The new standard amends disclosures regarding interests in other entities including subsidiaries, joint arrangements, associates and unconsolidated structured entities. The disclosures are intended to help users understand the judgements and assumptions made by a reporting entity when deciding how to classify its involvement with another entity; help users understand the interest that non-controlling interests have in consolidated entities; and help users assess the nature of the risks associated with interests in other entities.The Group anticipates changes to its disclosure as a result of this standard and is currently assessing the impact.IFRIC 20 - This interpretation applies to waste removal (stripping) costs that are incurred in surface mining activity, during the production phase of the mine (production stripping costs). The Group has recently re-commenced production from its open cast mine (Williamson) and so this standard will be relevant. IFRIC 20 requires that, to the extent that the benefit from the stripping activity is realised in the form of inventory produced, the directly attributable costs of that activity should be treated as ore stockpile inventory. To the extent that the benefit is the improved access to ore, the directly attributable costs should be treated as a non-current 'stripping activity asset', if the following criteria are met:$$it is probable that the future economic benefit (improved access to the orebody) associated with the stripping activity will flow to the entity;$$the entity can identify the component of the orebody for which access has been improved; and$$the costs relating to the improved access to that component can be measured reliably.The stripping activity asset is initially measured at cost and is treated as an enhancement of an existing asset, not as an independent asset. Subsequently the stripping activity asset is accounted for in a manner consistent with that adopted for the asset it has enhanced and is depreciated on a units of production basis, over the expected useful life of the identified component of the orebody that becomes more accessible as a result of the stripping activity. 1.3 Basis of consolidationSubsidiariesSubsidiaries are those entities over which financial and operating policies the Group has the power to exercise control. The Group financial statements incorporate the assets, liabilities and results of operations of the Company and its subsidiaries. The results of subsidiaries acquired and disposed of during a financial year are included from the effective dates of acquisition to the effective dates of disposal. Where necessary, the accounting policies of subsidiaries are changed to ensure consistency with the policies adopted by the Group.Business combinationsThe results of business combinations are accounted for using the purchase method. In the Consolidated Statement of Financial Position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the Consolidated Statement of Other Comprehensive Income from the date on which control is obtained. Business combinations are deconsolidated from the date control ceases. The interest of non-controlling shareholders in the acquiree is initially measured at the non-controlling shareholders' proportion of the fair value of the assets, liabilities and contingent liabilities recognised. All costs incurred on business combinations are charged to the Consolidated Income Statement. Changes in the Group's ownership interests that do not result in a loss of control are accounted for as equity transactions with the existing shareholder under IAS 27.Non-controlling interestsNon-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling shareholder's share of changes in equity since the date of the combination. As a result of the revision to IAS 27 "Consolidated and Separate Financial Statements", the non-controlling interests' share of losses, where applicable, are attributed to the non-controlling interests irrespective of whether the non-controlling shareholders have a binding obligation and are able to make an additional investment to cover the losses. Notes to the Annual Financial StatementsFor the year ended 30 June 2012 continued

Annual Report and Accounts 2012 Petra Diamonds Limited83Operational ReviewCorporate GoDiscover Petra DiamondsBusiness ReviewvernanceGroup AccountsCompany Accounts1. Accounting policies continued1.3 Basis of consolidation continuedAssociatesAn associate is an enterprise over whose financial and operating policies the Group has the power to exercise significant influence and which is neither a subsidiary nor a joint venture of the Group. The equity method of accounting for associates is adopted in the Group financial statements. In applying the equity method, account is taken of the Group's share of accumulated retained earnings and movements in reserves from the effective date on which an enterprise becomes an associate and up to the effective date of disposal. The share of associated retained earnings and reserves is generally determined from the associate's latest audited financial statements. Where the Group's share of losses of an associate exceeds the carrying amount of the associate, the associate is carried at nil. Additional losses are only recognised to the extent that the Group has incurred obligations or made payments on behalf of the associate.Transactions eliminated on consolidation Intra-group balances and transactions, and any gains or losses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of the Group's interest in the enterprises. Unrealised gains arising from transactions with associates are eliminated against the investment in the associates. Unrealised losses on transactions with associates are eliminated in the same way as unrealised gains except that they are only eliminated to the extent that there is no evidence of impairment. 1.4 Property, plant and equipmentProperty, plant and equipment are stated at historic cost less accumulated depreciation and accumulated impairment losses. Where an item of property, plant and equipment comprises major components with different useful lives, the components are accounted for as separate items of property, plant and equipment. Depreciation is provided over the estimated useful lives of assets.The depreciation rates are as follows:Mining assets:Plant, machinery and equipment Units of production method Mineral properties Units of production methodExploration and other assets:Plant and machinery 10%-20% straight-line basis Office equipment 10% straight-line basis Computer equipment 25% straight-line basis Motor vehicles 20% straight-line basisDepreciation of mineral properties for the Group's operating mines, Cullinan, Finsch, Williamson, Koffiefontein, Kimberley Underground, Helam, Sedibeng and Star, are based on current life of mine plans. The current mine plans indicate useful life of mines of between 10 and 22 years. Resources remaining after the current life of mine plans have not been included in depreciation calculations. Cullinan mining assets relating to the C-Cut block of the mine have not been depreciated as the C-Cut has not yet been accessed.At each mine, assets are allocated to the sections of the relevant orebodies that they will be used to mine and are being depreciated over the specific tonnes associated with the identified areas.Subsequent expenditure relating to an item of property, plant and equipment is capitalised when it is probable that future economic benefits from the use of that asset will be increased. All other subsequent expenditure is recognised as an expense in the period in which it is incurred. Expenditure relating to an item of property, plant and equipment considered to be an asset under construction is capitalised when it is probable that future economic benefits from the use of that asset will be realised.Surpluses/(deficits) on the disposal of property, plant and equipment are credited/(charged) to the Consolidated Income Statement. The surplus or deficit is the difference between the net disposal proceeds and the carrying amount of the asset.1.5 LeasesFinance leases Leases that transfer substantially all the risks and rewards of ownership of the underlying asset to the Group are classified as finance leases. Assets acquired under terms of finance leases are capitalised at the lower of fair value and the present value of the minimum lease payments at inception of the lease and depreciated over the estimated useful life of the asset. The capital element of future obligations under the leases is included as a liability in the Consolidated Statement of Financial Position.Lease payments are allocated using the effective interest rate method to determine the lease finance cost, which is charged against income over the lease period and the capital repayment, which reduces the liability to the lessor.Operating leases Leases where the lessor retains the risks and rewards of ownership of the underlying asset are classified as operating leases. Payments made under operating leases are charged against income on a straight-line basis over the period of the lease.