NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED) For the year ended 30 June 2014 1 CORPORATE INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (c) Summary of significant accounting policies  (continued) (continued) (d) Significant accounting judgements, estimates and  assumptions (xxx) Financial guarantees (i) Impairment of goodwill and intangibles with indefinite  useful lives (ii) Share-based payment transactions (iii) Impairment of film distribution royalties (iv) Income Taxes (xxxi) Film distribution royalties – Probability of Default: This represents the likelihood of the guaranteed  party defaulting in the remaining guarantee period and is assessed  based on historical default rates of companies rated by Standard &  Poors. The probability of default ranges used for the years ended 30 June  2014 and 30 June 2013 were 19.5% to 25.8%. – Recovery Rate: This represents the estimated proportion of the exposure  that is expected to be recovered in the event of a default by the  guaranteed party and is estimated based on the business of the  guaranteed parties. The recovery rate ranges used for the years ended  30 June 2014 and 30 June 2013 were 40% to 60%. The fair values of financial guarantee contracts as disclosed in Note 28 have  been assessed using a probability weighted discounted cash flow approach.  In order to estimate the fair value under this approach the following  assumptions were made: The values of the financial guarantees over each future year of the  guarantees’ lives is discounted over the contractual term of the guarantees  to reporting date to determine the fair values. The contractual term of the  guarantees matches the underlying obligations to which they relate. The  financial guarantee liabilities determined using this method are then  amortised over the remaining contractual term of the guarantees. Film distribution royalties represent the consolidated entity’s minimum  guaranteed royalty commitments to licensors in return for the acquisition  of distribution rights. The commitments can be for either the life of contract  or part thereof. On entering into the agreement the commitments are  brought to account in the statement of financial position as assets and  liabilities (the latter in respect of any unpaid components). Film distribution royalties are expensed in line with the exploitation of the  distribution rights. At the time the distribution rights are first exploited, a  forecast of the lifetime earnings and royalties is made and any impairment  is immediately taken to profit or loss. The forecast royalties are then  reviewed and revised over the commitment period to ensure the carrying  amount is equal to the lesser of the expected future royalties to be  generated or the balance of the minimum guaranteed royalties. The group assesses for impairment of assets at each reporting date by  evaluating conditions specific to the Group and to the particular asset that  may lead to impairment. If an impairment trigger is identified, the  recoverable amount of the asset is determined. (v) Impairment of non-financial assets other than goodwill and  indefinite life intangibles The Group is subject to income taxes in Australia and jurisdictions where it  has foreign operations. Significant judgement is required in determining the  worldwide provision for income taxes. There are many transactions and  calculations undertaken during the ordinary course of business for which  the ultimate tax determination is uncertain. The Group recognises liabilities  for anticipated tax audit issues based on estimates of whether additional  taxes will be due (refer to Note 22(a)(iv)). Where the final tax outcome of  these matters is different from the amounts that were initially recorded,  such differences will impact the current and deferred tax provision in the  period in which such determination is made. The Group determines whether film distribution royalties are impaired at  least at each reporting date. This requires an estimation of the recoverable  amount of the film distribution royalties based on calculations of the  discounted cash flows expected to be received in relation to the royalties. The Group measures the cost of equity-settled transactions with  employees by reference to the fair value of the equity instruments at the  date at which they are granted. The fair value is determined by an external  valuer using a binomial option pricing model, a Monte Carlo simulation  technique or the Black-Scholes model, as appropriate, using the  assumptions detailed in Note 25. The Group determines whether goodwill and intangibles with indefinite  useful lives are impaired at least on an annual basis. This requires an  estimation of the recoverable amount of the cash-generating units to which  the goodwill and intangibles with indefinite useful lives are allocated. The  assumptions used in this estimation of recoverable amount and the  carrying amount of goodwill and intangibles with indefinite useful lives are  discussed in Note 9. The carrying amounts of certain assets and liabilities are often determined  based on judgements, estimates and assumptions of future events. The key  judgements, estimates and assumptions that have a significant risk of  causing a material adjustment to the carrying amounts of certain assets  and liabilities within the next annual reporting period are: 44 VILLAGE ROADSHOW LIMITED