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Notes to the consolidated fnancial statements (continued)

for the year ended 30 June 2011

33. Signifcant accounting policies (continued)

33.1 Signifcant accounting policies applicable to all Group entities (continued)

33.1.17 Non-derivative fnancial liabilities (continued)

(b) Financial liabilities carried at amortised cost Financial liabilities carried at amortised cost are initially measured at fair value plus any directly attributable transaction costs. They are subsequently measured at amortised cost using the effective interest method. The Suncorp Group’s fnancial liabilities at amortised cost includes payables due to other fnancial institutions and deposits and short-term borrowings, debt issues, subordinated notes and preference shares. (c) Derecognition of fnancial liabilities

Non-derivative fnancial liabilities are derecognised when the contractual obligations are discharged, cancelled or expired. (d) Preference shares

Reset Preference Shares (RPS) and Convertible Preference Shares (CPS) are recognised as fnancial liabilities at amortised cost. The capital is initially recognised at fair value plus directly attributable transaction costs and subsequently measured at amortised cost. Dividends are charged as an interest expense as accrued.

RPS are exchangeable on specifc dates at the option of the holder. Once an exchange request is received, the Suncorp Group can elect to exchange the RPS to cash or a variable number of Suncorp-Metway Ltd ordinary shares, exhibiting characteristics of a fnancial liability.

CPS are convertible to a variable number of the Company’s ordinary shares on mandatory conversion dates and hence exhibit characteristics of a fnancial liability.

Further details on the RPS and CPS can be found in note 7.10.

33.1.18 Compound instruments

The component parts of compound instruments issued by the Suncorp Group are classifed separately as fnancial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a fnancial liability at amortised cost until extinguished upon conversion or at the instrument’s maturity date. The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity, net of income tax effects, and is not subsequently remeasured. Issue costs are apportioned between the liability and equity components of the instruments on their relative carrying amounts at the date of issue.

33.1.19 Leases

A distinction is made between fnance leases (which effectively transfer substantially all the risks and benefts incidental to ownership of leased non-current assets from the lessor to the lessee) and operating leases under which the lessor effectively retains substantially all such risks and benefts. (a) Finance leases

Finance leases, where the Suncorp Group is the lessor, are recognised as loans and other receivables on the commencement of the lease, and measured at the net investment in the lease, being the present value of the minimum lease payments receivable and any unguaranteed residual value, plus any initial direct costs.

The revenue attributable to fnance leases is brought to account in proft or loss based on a constant periodic rate of return on the Suncorp Group’s net investment in the fnance lease. (b) Operating leases

Payments made under operating leases are expensed on a straight-line basis over the term of the lease, except where an alternative basis is more representative of the time pattern of benefts to be derived from the leased asset. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

Surplus leased premises

A provision is recognised for surplus leased premises where it is determined that no material beneft will be obtained by the Suncorp Group from its occupancy. This arises where premises are leased under non-cancellable operating leases and the Suncorp Group either:

–– currently does not occupy the premises and does not expect to occupy them in the future

–– sublets the premises for lower rentals than it is presently obliged to pay under the original lease; or –– currently occupies the premises which have been assessed to be of no material beneft beyond a known future date.

The provision is calculated on the basis of net future cash outfows.

33.1.20 Employee entitlements

(a) Superannuation

The Suncorp Group contributes to both defned contribution and defned beneft superannuation schemes. Contributions made to defned contribution plans are charged to the proft or loss as the obligation to pay is incurred. The defned contribution plans receive fxed contributions and the Suncorp Group’s legal or constructive obligation is limited to these contributions.