Page 37 - NZPM Annual Report 2020

NZPM GROUP LIMITED
Notes to the Consolidated Financial Statements for the year ended 31 March 2020

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses
control of the subsidiary. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions
between the members of the Group are eliminated on consolidation.

Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is
measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities
incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the
acquiree. Acquisition-related costs are recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired
and the liabilities assumed are recognised at their fair value at the acquisition date.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the
acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date
amounts of the identifiable assets acquired and the liabilities assumed. When a business combination is achieved in stages, the
Group’s previously held interests in the acquired entity are remeasured to its acquisition-date fair value and the resulting gain or loss, if
any, is recognised in profit or loss.

Goodwill
Goodwill is initially recognised and measured as set out in ‘business combinations’ above.

Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is
allocated to the Group’s cash-generating unit(s). Cash-generating unit(s) to which goodwill has been allocated are tested for
impairment annually, or more frequently when there is an indication that the unit(s) may be impaired. If the recoverable amount
of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying
amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of
each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

The discount rate used for the purposes of goodwill impairment testing is based on a calculated weighted average cost of capital.
The weighted average cost of capital is based on the cost of debt and cost of equity weighted accordingly between the relative
percentages of debt and equity. The cost of debt is the actual cost of debt.
On disposal of a cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on
disposal.

The Group’s policy for goodwill arising on the acquisition of an associate is described below.

Investments in associates
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint
venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not
control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these financial
statements using the equity method of accounting. Under the equity method, an investment in an associate is recognised initially in
the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss
and other comprehensive income of the associate.

An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate.
On acquisition of the investment in an associate, any excess of the cost of the investment over the Group’s share of the net fair value
of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the
investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment,
after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired.

The Group discontinues the use of the equity method from the date when the investment ceases to be an associate or a joint venture.

Revenue recognition

The Group recognises revenue from a single source:
• sale of plumbing and related products.

Revenue is measured based on the consideration specified in a contract with a customer after deducting customer discounts and
rebates and future expected returns. Where the rebate is prospectively scaled based on a customer’s level of purchasing, the Group
estimates the option cost of the expected additional future rebate as a reduction in revenue.

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NZPM GROUP LIMITED ANNUAL REPORT 2020