Group and Company accounting policies

BASIS OF ACCOUNTING AND REPORTING

The financial statements have been prepared on the historical cost basis except for certain financial instruments that are fairly valued by marking-to-market. Significant details of the Group and Company's accounting policies are set out below which are consistent with those applied in the previous year. Prior to 2007, the Company recorded revenue for the sale of vendor maintenance contracts on a gross basis. During 2007, the Company performed additional analysis on certain vendor maintenance contracts and concluded that the vendor was the primary obligor in the arrangement. Since the primary obligor is a strong factor in the determination of principal versus agent under IAS 18: Revenue, the Group determined that recognising revenue net of cost was the more appropriate application of IAS 18: Revenue. Accordingly, in 2007, the Company modifi ed its accounting treatment for certain vendor maintenance contracts. There was no effect to gross profit or net income. A summary of the restatement is contained in Note 1.

The financial statements comply with the International Financial Reporting Standards ("IFRS") of the International Accounting Standards Board, the JSE Listings Requirements, AIM Rules and the Companies Act of South Africa.

ADOPTION OF NEW ACCOUNTING STANDARDS, AMENDMENTS TO STANDARDS AND INTERPRETATIONS

During the year the Group and Company have adopted the following applicable statements, amendments to statements and interpretations:

Amendments to statements:

• IAS 21 - Net Investment in a Foreign Operation
• IAS 39 - Financial Instruments: Recognition and Measurement.

New interpretations:

• IFRIC 4 - Determining whether an Arrangement contains a Lease.

The adoption of the above statements and interpretations has had no material impact on the Group and Company's financial statements. At the date of authorisation of these fi nancial statements, the following standards and interpretations applicable to the Group were in issue but not yet effective:

• IFRIC 8 - Scope of IFRS 2, effective for annual periods beginning on or after 1 May 2006
• IFRIC 9 - Reassessment of Embedded Derivatives, effective for annual periods beginning on or after 1 June 2006
• IFRIC 10 - Interim Financial Reporting and Impairment, effective for annual periods beginning on or after 1 November 2006
• IFRIC 11 - IFRS2 Group and Treasury Share Transactions, effective for annual periods beginning on or after 1 March 2007
• IFRC 12 - Service Concession Arrangements, effective for annual periods beginning on or after 1 January 2008
• IFRS 7 - Financial Instruments: Disclosure effective for annual periods beginning on or after 1 January 2007
• IFRS 8 - Operating Segments, effective for annual periods beginning on or after 1 January 2009.

The directors believe that none of these new or revised standards and interpretations will have an effect other than enhanced disclosure.

KEY ASSUMPTIONS MADE BY MANAGEMENT IN APPLYING ACCOUNTING POLICIES

In the application of the Group and Company's accounting policies described below, management is required to make judgements, estimates and assumptions about the carrying value 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 which are considered to be relevant. Actual results may differ from these estimates.

The estimates and the 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.

The following are the significant areas of estimation included in the Group's annual financial statements:

• Estimates made in determining the recoverable amount of assets. Where there is an indication that an asset may be impaired, this includes the estimation of cash flows and the discount rates used;
• Estimates made in determining the probability of future taxable income thereby justifying the recognition of deferred tax assets;
• Estimates made in determining changes in estimated useful lives of assets and their residual values;
• Estimates made of contingent liabilities disclosed;
• Estimates made in determining the extent to which goodwill should be impaired; and
• Estimates made in determining the level of provision required for obsolete inventory and doubtful debts.

BASIS OF CONSOLIDATION

The Group reports in US Dollars in order to be consistent with the economic substance of the underlying events and circumstances of the Group's businesses. The US Dollar is the functional currency in which the major part of the Group's trading is conducted. Reporting in US Dollars reduces the distorting effects of changes in currency exchange rates, simplifies financial analysis and enhances the transparency of the financial results. Presenting financial information in US Dollars is also more meaningful to global investors and for international benchmarking.

The translation for reporting purposes into US Dollars is done as follows:

• Assets and liabilities (including comparatives) are translated at the closing rate ruling at the date of each balance sheet; and
• Income and expense items for all periods presented (including comparatives) are translated at a weighted average rate that approximates the ruling exchange rates at the dates of the transactions.

The consolidated Group financial statements incorporate the financial statements of the Company and all enterprises controlled by the Company up to 28 February each year. Control is achieved where the Group has the power to govern the financial and operating policies of an enterprise so as to obtain economic benefits from its activities.

The operating results of these entities have been included from the effective dates of acquisition to the effective dates of disposal. All significant inter-company transactions, balances, income and expenses have been eliminated in full on consolidation.

On acquisition, the assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. To the extent that the cost of the acquisition, in excess of the fair value of the net assets acquired, is attributable to intangible assets that the entity holds for its own use or for rental to others, this value is recognised as an intangible asset. Any additional difference between the cost of acquisition and total net asset value of the entity is recognised as goodwill. The interest of minority shareholders is stated at the minority's proportion of the fair values of the assets and liabilities recognised.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those of the Group.

BUSINESS COMBINATIONS

Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured as the aggregate of the fair values (at date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions of recognition under IFRS 3 Business Combinations are recognised at their fair values at the acquisition date, except for non-current assets that are classifi ed as held-for-sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit and loss.

The interest of minority shareholders in the acquiree is initially measured at the minority's proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

FOREIGN CURRENCY TRANSACTIONS

Transactions in currencies other than the reporting currency are initially recorded at the rates of exchange ruling on the dates of the transactions. At each balance sheet date, monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are dealt with in the income statement except for profits and losses on exchange arising from equity loans which are taken directly to equity, until the entity to which the loan was made has been disposed of, at which time they are recognised as income or an expense.

Exchange differences arising on equity loans and the translation of foreign subsidiaries are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised as income or expenses in the period during which disposals are effected.

Where appropriate, in order to minimise its exposure to foreign exchange risks, the Group enters into forward exchange contracts. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.

PROPERTY, PLANT AND EQUIPMENT

Land and buildings comprise mainly warehouses and offices. All property, plant and equipment have been stated at cost less accumulated depreciation and impairment except land, which is shown at cost less impairment. Depreciation is calculated based on cost using the straight-line method over the estimated useful lives of the assets and their recoverable amount.

The basis of depreciation provided on property, plant and equipment is as follows:

		Useful lives (years)
Office furniture and equipment		2 - 6
Motor vehicles		2 - 4
Computer equipment and software		2 - 6
Buildings		20
Leasehold improvements		Period of the lease
Land is not depreciated.

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the income statement.

LEASED ASSETS

Assets leased in terms of agreements, which are considered to be finance leases, are capitalised. Capitalised leased assets are depreciated at the same rate and on the same basis as equivalent owned assets or over the term of the lease if this is shorter. The liability to the lessor is included in the balance sheet as a finance lease obligation. Lease fi nance charges are amortised over the duration of the underlying leases, using the effective interest rate method.

Operating leases, mainly for the rental of premises, office furniture, computer equipment and motor vehicles are not capitalised and rentals are expensed on a straight-line basis over the lease term.

CAPITALISED DEVELOPMENT EXPENDITURE

An intangible asset arising from internal development (or from the development phase of an internal project) is recognised only if the Group can demonstrate all of the following:

(a) the technical feasibility of completing the intangible asset so that it will be available for use or sale;
(b) its intention or ability to complete the intangible asset, and use or sell it;
(c) how the intangible asset will generate probable future economic benefits, including the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the  
     usefulness of the intangible asset;
(d) the availability of adequate technical, financial and other resources to complete the development, and to use or sell the intangible asset; and
(e) its ability to reliably measure the expenditure attributable to the intangible asset during its development.

Capitalised development costs are amortised using the straight-line method over their useful lives, which generally do not exceed seven years.

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

OTHER INTANGIBLE ASSETS

Intangible assets are identifiable non-monetary assets without physical substance that an entity holds for its own use or for rental to others and include technology-based items like patents, copyrights and databases; customer-based items, research and development an contract-based items.

An intangible asset is recognised when it meets the following criteria:

(a) it is identifiable;
(b) the entity has control over the asset;
(c) it is probable that economic benefits will flow to the entity; and
(d) the cost of the asset can be measured reliably.

Intangible assets are amortised using the straight-line method over their useful lives, which generally do not exceed 10 years.

Intangible assets which do not meet the criteria listed above are recognised as an expense in the period in which it is incurred.

GOODWILL

Goodwill represents the excess cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. For the purposes of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. In computing the gains and losses on the disposal of an entity, or part thereof, included is the carrying amount of goodwill relating to the entity or part thereof.

Impairment tests are conducted annually on goodwill based on future discounted cash flows.

IMPAIRMENT

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs-to-sell and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, its carrying amount is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately and are refl ected in the income statement.

Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but will never exceed the carrying amount that would have been determined had no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised immediately in the income statement.

INVENTORIES

Inventories, comprising merchandise for resale and raw materials, are stated at the lower of cost and net realisable value and are mainly valued on the weighted average cost basis.

Provision is made for obsolete and slow-moving inventory.

Contract work in progress is recognised on the percentage of completion method by reference to the milestones for each contract.

FINANCIAL INSTRUMENTS

Measurement
Financial instruments are initially measured at cost, which includes transaction costs and approximates fair value. Subsequent to initial recognition these instruments are measured at amortised cost using the effective interest rate method.

Investments
Investments, other than investments in subsidiaries, are recognised on a trade-date basis and are initially measured at cost, including transaction costs. These investments are classifi ed as either held-for-trading or available-for-sale, and are measured at subsequent reporting dates at fair value.

Where securities are held for trading purposes, gains or losses arising from changes in fair value are included in the income statement for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the income statement for the period.

Fair value of listed investments is calculated by reference to the quoted selling price at the close of business on the balance sheet date.

Unlisted investments are shown at fair value or at cost where fair value cannot be reliably measured.

Trade receivables
Trade receivables are recognised initially at cost, which approximates fair value and are subsequently measured at amortised cost using the effective interest rate method. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all the amounts due according to the original terms of the receivables.

Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

Borrowings
Borrowings are initially recorded at fair value, net of direct issue costs, and are subsequently measured at amortised cost using the effective interest rate method. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Trade payables
Trade payables are recognised initially at cost, which approximates fair value and are subsequently measured at amortised cost using the effective interest rate method.

Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of the direct issue costs.

PROVISIONS

Provisions are recognised when the Group has a present legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made for the amount of the obligation. Non-current provisions are adjusted to reflect the time value of money.

Present obligations arising under onerous contracts are recognised and measured as a provision. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

AMOUNTS OWING TO VENDORS

Amounts owing to vendors represent purchase considerations owing in respect of acquisitions. These purchase considerations are to be settled with the vendors in cash or shares on fulfilment of the relevant profit warranties. The amounts owing are interest free and will be settled within the next year. Any additional amounts payable to vendors will be allocated to goodwill arising on acquisition and will have no effect on the income statement.

TAXATION

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable income for the year. Taxable income differs from net income as reported in the income statement because it includes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Group's liability for current tax uses relevant rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences which arise from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable income. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable income will be available against which deductible temporary differences can be utilised. The carrying value of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.

REVENUE RECOGNITION

Revenue is measured at fair value of the consideration received or receivable and, except for the sale of vendor maintenance contracts, represents the invoiced value of sales and services rendered, excluding discounts and sales-related taxes. Revenue from the sale of vendor maintenance contracts is recognised on a net basis and the commission or gross profit earned on these contracts is recognised as revenue. In respect of trading operations revenue is recognised at the date on which goods are delivered to customers or services are provided.

Revenue and profits from the rendering of services on long-term and fixed-price contracts are recognised on the percentage of completion method, after providing for contingencies and once the outcome of the contract can be assessed with reasonable assurance. The percentage of completion is measured by reference to milestones set out in each contract. As soon as losses on individual contracts become evident, they are provided for in full.

Revenue from cost plus contracts is recognised by reference to the recoverable costs incurred during the period plus the fee earned, measured by the proportion that costs incurred to date bear to the estimated total costs of the contract.

Within the Group, inter-company and inter-divisional revenue are eliminated on consolidation. Interest received is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

BORROWING COSTS

All borrowing costs are recognised in profit and loss in the period in which they are incurred.

SHARE-BASED PAYMENTS

The Group issues equity-settled and cash-settled share-based incentives to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non-market based vesting conditions.

For cash-settled share-based payments the liability for the fair value of all unexercised share rights which are expected to vest is determined on the reporting date and amortised over the applicable period.

Fair value is measured by use of a binomial model for the equity-settled share-based payments and by use of a Black-Scholes-Merton model for cash-settled share-based payments. The expected life used in the models has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

PENSION SCHEME ARRANGEMENTS

Certain subsidiaries of the Group make contributions to various defined contribution retirement plans on behalf of employees, in accordance with the local practice in the country of operation. These contributions are charged against income as incurred. The Group has no liability to these defined contribution retirement plans other than the payment of its share of the contribution in terms of the agreement with the funds and employees concerned, which differs from country to country.

DISCONTINUED OPERATIONS

Discontinued operations are signifi cant, distinguishable components of the Group that have been sold, abandoned or are the subject of formal plans for disposal or discontinuance. Any operation disposed of subsequent to year-end is considered to be a discontinued operation for disclosure purposes.

Once an operation has been identified as discontinued, comparative information is restated.