African Medical Investments PLC Final Results -6-

Goodwill is reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed. For the purpose of impairment testing goodwill is allocated to cash generating units of the acquirer which represent the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. On disposal of a subsidiary, associate or joint venture, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Property, plant and equipment

All items of property, plant and equipment are stated at historical cost less depreciation (see below) and impairment. Historical cost includes expenditure that is directly attributable to the acquisition. Subsequent costs are included in the asset's carrying value when it is considered probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each item, as follows:

 
     Buildings and leasehold improvements        5% - 20% depending on the lease 
                                                                       agreement 
     Plant and equipment                                               20% - 25% 
     Medical equipment                                               12.5% - 25% 
     Aircraft                                                                10% 
     Motor vehicles                                                          25% 
     Office furniture and equipment                                12.5% - 33.3% 
 

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the income statement.

Impairment of property, plant and equipment

Whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable an asset is reviewed for impairment. An asset's carrying value is written down to its estimated recoverable amount (being the higher of the fair value less costs to sell and value in use) if that is less than the asset's carrying amount.

Impairment reviews for assets under construction are carried out on a project by project basis, with each project representing a potential single cash generating unit. An impairment review is undertaken when indicators of impairment arise but typically when one of the following circumstances applies:

   --    Title to the asset is compromised; or 
   --    The Group determines it no longer wishes to continue with or develop the project. 

Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on the first in, first out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.

Financial assets at fair value through profit or loss

Financial assets carried at fair value through profit and loss are initially recognised at fair value, and transactions costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or been transferred.

For financial assets subsequently carried at fair value, gains or losses arising from changes in fair value are presented in the income statement within other gains or losses in the period in which they arise.

Trade and other receivables

Trade and other receivables are not interest bearing and are initially recognised at their fair value and are subsequently stated at amortised cost using the effective interest method as reduced by appropriate allowances for estimated irrecoverable amounts.

Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less which are subject to an insignificant risk of changes in value. Bank overdrafts are included in Trade and other payables.

Financial liabilities

Trade and other payables

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

Provisions

Provisions are recognised when the Group has a legal or constructive obligation as a result of past events, it is probable that an outflow of the resources will be required to settle the obligation and the amount can be reliably estimated.

Convertible loan notes

Convertible loan notes are recognised as compound financial instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt. The difference between the proceeds of issue of the convertible loan notes and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, is included in equity in other reserves.

Issue costs are apportioned between the liability and equity components of the notes based on their relative carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity.

The interest expense on the liability component is calculated by applying the prevailing market interest rate for similar non-convertible debt to the liability component of the instrument.

Equity instruments

Equity instruments issued by the Company are recorded at fair value on initial recognition, net of transaction costs.

Share based payment

Certain Group employees and consultants are rewarded with share based instruments. These are stated at fair value at the date of grant and are expensed to the income statement, over the vesting period of the instrument, or to the balance sheet when the share based payment relates to the provision of fund raising services.

Fair value is estimated using the Black-Scholes option pricing model. The estimated life of the instrument used in the model is adjusted for management's best estimate of the effects of non-transferability, exercise restrictions and behavioural considerations.

Operating segments

The chief operating decision maker is the Board of Directors. The board reviews the Group's internal reporting in order to assess performance of the business. Management has determined the operating segments based on the reports reviewed by the Board. The Board considers the activities from a business viewpoint.

3. Financial risk factors

The Group's principal financial instruments comprise cash and short-term deposits. The main purpose of these is to finance the Group operations and expansion. The Group has other financial instruments such as trade receivables and trade payables which arise directly from normal trading.

The main risks arising from the Group's financial instruments are credit risk, liquidity risk and market risk (including interest rate risk and currency risk). The board reviews and agrees policies for managing each of these risks and these are summarised below.

Credit risk

Credit risk arises from cash and cash equivalents, and deposits with banks and financial institutions, as well as outstanding receivables. The Group's principal deposit is held with a bank with a high credit rating to reduce credit risk. Receivables are regularly monitored and assessed for recoverability.

Liquidity risk

The Group's policy throughout the period has been to ensure that it has adequate liquidity by careful management of its working capital. At 29 February 2012 the Group was in a position of overdraft to the amount of US$ 88,000 (2011: cash deposits of US$ 4.7 million). Liquidity requirements are projected to be met by subscription for new Convertible Loan Notes by Harbinger Capital Partners Master Fund 1, Ltd (refer to note 33 for further details) by, the proceeds from sale of AMI Aviation coupled with direct shareholder funding and support and the further raising of short term facilities in currencies that match the requirement and raising of long term facilities to achieve an appropriately geared balance sheet. To further confirm liquidity status, the convertible loan notes held are not redeemable before February 2016 except at the instance of the Company.

Market risk

The significant market risk exposures to which the Group is exposed are interest rate risk and foreign currency risk. These are discussed further below:

Interest rate risk

The Group finances its operations through the use of cash deposits at variable rates of interest for a variety of short term periods, depending on cash requirements. The rates are reviewed regularly and the best rate obtained in the context of the Group's need. The weighted average interest rate on deposits was 0.06% (2010: 0.06%).

The exposure of the Group's financial assets to interest rate risk is as follows:

 
                                                2012        2011 
                                               $'000       $'000 
                                          ----------  ---------- 
     Financial assets at floating rates          195       4,681 
                                          ==========  ========== 
 

Foreign currency risk