NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 30 JUNE 2011 Note 1. Summary of Significant Accounting Policies  (continued) (l) Intangibles  (continued) Impairment of Goodwill (m) Exploration and Evaluation Expenditure 42 Karoon Gas Australia Ltd  Annual Report 2011 For the purpose of impairment testing at the end of each reporting period, goodwill recognised in a business combination is, from  the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected  to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to  those units or groups of units. Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. An impairment loss is recognised as an expense in the consolidated statement of comprehensive income for the amount by which the asset’s carrying amount exceeds its estimated recoverable amount. Any impairment loss recognised for goodwill is not subsequently reversed. Expenditure on exploration and evaluation activities is accounted for in accordance with the ‘area of interest’ method of  AASB 6  ‘Exploration for and Evaluation of Mineral Resources’ . Exploration and evaluation expenditure is capitalised at cost, as an intangible,  provided the right to tenure of the area of interest is current and either: Otherwise, exploration and evaluation expenditure is expensed as incurred. Accumulated costs in relation to an abandoned area are written off in full in the consolidated statement of comprehensive income  during the financial period in which the decision to abandon the area of interest is made. As capitalised exploration and evaluation expenditure is not available for use, it is not amortised. Cash flows associated with exploration and evaluation expenditure (comprising amounts capitalised) are classified as investing  activities in the consolidated statement of cash flows. Whereas, cash flows associated with exploration and evaluation expenditure  expensed are classified as operating activities in the consolidated statement of cash flows. When the technical feasibility and commercial viability of extracting economically recoverable reserves have been demonstrated,  any related capitalised exploration and evaluation expenditure is reclassified as development expenditure in the consolidated  statement of financial position. Prior to reclassification, capitalised exploration and evaluation expenditure is assessed for  impairment. The Group does not record any exploration and evaluation expenditure made by a farmee. It also does not recognise any gain or  loss on its exploration and evaluation farm-out arrangements but redesignates any exploration and evaluation expenditure  previously capitalised in relation to the whole area of interest as relating to the partial interest retained. Any cash consideration received on sale or farm-out of an area within an exploration area of interest is offset against the carrying  value of the particular area involved. Where the total carrying value of an area of interest has been recouped in this manner, the  balance of the proceeds is brought to account in the consolidated statement of comprehensive income as a gain on disposal. Farm-out • the exploration and evaluation activities are expected to be recouped through successful development and exploitation of the  area of interest or, alternatively, by its sale; or • exploration and evaluation activities in the area of interest have not at the end of the reporting period reached a stage that  permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant  operations in, or in relation to, the area of interest are continuing.