Investor Presentaiton

Armour Energy and controlled entities armourenergy.com.au Financial report continued Notes to the consolidated financial statements continued NOTE 3. SIGNIFICANT ACCOUNTING POLICIES CONTINUED NON-CURRENT ASSETS OR DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE Non-current assets and assets of disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continued use. They are measured at the lower of their carrying amount and fair value less costs of disposal. For non-current assets or assets of disposal groups to be classified as held for sale, they must be available for immediate sale in their present condition and their sale must be highly probable. An impairment loss is recognised for any initial or subsequent write down of the non-current assets and assets of disposal groups to fair value less costs of disposal. A gain is recognised for any subsequent increases in fair value less costs of disposal of a non- Ⓒ current assets and assets of disposal groups, but not in excess of any cumulative impairment loss previously recognised. Non-current assets are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of assets held for sale continue to be recognised. Non-current assets classified as held for sale and the assets of disposal groups classified as held for sale are presented separately on the face of the statement of financial position, in current assets. The liabilities of disposal groups classified as held for sale are presented separately on the face of the statement of financial position, in current liabilities. JOINT OPERATIONS A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. The Group has entered into joint arrangements with various parties for interest in exploration tenements as disclosed in note 30. Exploration expenditures incurred in relation to these joint operations have been capitalised in accordance with AASB 6 Exploration for and Evaluation of Mineral Resources. Stori ப IMPAIRMENT OF NON-FINANCIAL ASSETS Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. At each reporting date, Management reviews the carrying values of its assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell and value in use is compared to the assets carrying value. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. ACCOUNTING POLICY FOR CONVERTIBLE NOTES Financial liabilities carried at amortised cost are initially measured at fair value including transaction costs. They are subsequently measured at amortised cost using the effective interest rate method. The Group's convertible notes are treated as non-derivative financial liability carried at amortised cost. On initial recognition of the convertible note, the liability and equity components are identified and separately measured. The fair value of the liability component of the convertible notes is deducted from the fair value of the instrument as a whole, and the residual amount is recognised as an equity conversion right and not subsequent remeasured. The liability is subsequently recognised on an amortised cost basis until extinguished on conversion or maturity of the notes. Details on how the fair value of financial instruments is determined are disclosed in note 27. KEY JUDGEMENT - CONVERTIBLE NOTES The Group's convertible notes were treated as a financial liability, in accordance with the principles set out in AASB 9. The key criterion for liability classification is whether there is an unconditional right to avoid delivery of cash for another financial asset to settle the contractual obligation. The terms and conditions applicable to the convertible notes require the Group to settle the obligation in either cash, or in the Company's own shares. In the prior year, the convertible notes were convertible into ordinary shares of the parent entity, at the option of the holder, or repayable on 30 September 2019. The conversion rate is one share for each note held, but subject to adjustments for reconstructions of equity. Management determined that these terms give rise to a compound financial instrument having characteristics of both equity and liability. The initial fair value of the liability portion of the notes was determined using a market interest rate for an equivalent non-convertible note at the issue date. The liability is subsequently recognised on an amortised cost basis until extinguished on conversion or maturity of the notes. The remainder of the proceeds is allocated to the conversion option and recognised in shareholders' equity, net of income tax, and not subsequently remeasured. GRANTS Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received, and the company will comply with all attached conditions. Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate. 60 61

View entire presentation