30 June 2014 Notes to the Financial Statements TRADE AND OTHER RECEIVABLES INVENTORIES Construction work in progress DERIVATIVE FINANCIAL INSTRUMENTS ASSOCIATES Notes to the  Financial  Statements For personal use only Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the  effective interest method, less any provision for impairment. Trade receivables are generally due for settlement  within 30 days. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are  written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when  there is objective evidence that the Consolidated Entity will not be able to collect all amounts due according to the  original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter  bankruptcy or financial reorganisation and default or delinquency in payments are considered indicators that the  trade receivable may be impaired. The amount of the impairment allowance is the difference between the asset’s  carrying amount and the present value of estimated future cash flows, discounted at the original effective interest  rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. Other receivables are recognised at amortised cost, less any provision for impairment. Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value on a  ‘first in first out’ basis. Cost comprises direct materials and delivery costs, direct labour, import duties and other  taxes, an appropriate proportion of variable and fixed overhead expenditure based on normal operating capacity,  and, where applicable, transfers from cash flow hedging reserves in equity. Costs of purchased inventory are  determined after deducting rebates and discounts received or receivable. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of  completion and the estimated costs necessary to make the sale. Construction work in progress is valued at cost, plus profit recognised to date less any provision for anticipated  future losses. Cost includes both variable and fixed costs relating to specific contracts, and those costs that are  attributable to the contract activity in general and that can be allocated on a reasonable basis. Construction profits are recognised on the stage of completion basis and measured using the proportion of costs  incurred to date as compared to expected actual costs. Where losses are anticipated they are provided for in full. Construction revenue has been recognised on the basis of the terms of the contract adjusted for any variations or  claims allowable under the contract. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are  subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair  value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item  being hedged. Derivatives are classified as current or non-current depending on the expected period of realisation. Associates are entities over which the Consolidated Entity has significant influence but not control or joint control.  Investments in associates are accounted for using the equity method. Under the equity method, the share of  the profits or losses of the associate is recognised in profit or loss and the share of the movements in equity is  recognised in other comprehensive income. Investments in associates are carried in the statement of financial  position at cost plus post-acquisition changes in the Consolidated Entity’s share of net assets of the associate.  Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised  nor individually tested for impairment. Dividends received or receivable from associates reduce the carrying  amount of the investment. When the Consolidated Entity’s share of losses in an associate equals or exceeds its interest in the associate,  including any unsecured long-term receivables, the Consolidated Entity does not recognise further losses, unless  it has incurred obligations or made payments on behalf of the associate. The Consolidated Entity discontinues the use of the equity method upon the loss of significant influence over the  associate and recognises any retained investment at its fair value. Any difference between the associate’s carrying  amount, fair value of the retained investment and proceeds from disposal is recognised in profit or loss. Mineral Resources Limited Annual Report 2014  55