40 ANNUAL REPORT  2013  KATHMANDU (U) SHARE CAPITAL (V) EMPLOYEE BENEFITS (i) Wages and salaries, annual leave and sick leave (iv) Equity settled long term incentive plan (W) DIVIDENDS (X) CASH FLOW STATEMENT (ii) Long service leave (iii) Equity settled share option plan (Y) CHANGES IN ACCOUNTING POLICIES Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares  are shown in equity as a deduction, net of tax, from the proceeds. Where any Group company purchases the Company’s equity  share capital (treasury shares), the consideration paid, including  any directly attributable incremental costs (net of income taxes)  is deducted from equity attributable to the Company’s equity  holders until the shares are cancelled or reissued. Where such  shares are subsequently reissued, any consideration received net  of any directly attributable incremental transaction costs and the  related income tax effects, is included in equity attributable to the  Company’s equity holders. termination or unexercised options reaching maturity, the amount  in the share based payments reserve relating to those options is  transferred to retained earnings. The Executive and Senior Management Long Term Incentive  plan grants Group employees performance rights subject to  performance hurdles being met. The fair value of rights granted  is recognised as an employee expense in the Income Statement  with a corresponding increase in the employee share based  payments reserve. The fair value is measured at grant date and  amortised over the vesting periods. The fair value of the rights  granted is measured using the Kathmandu Holdings Limited  share price as at the grant date less the present value of the  dividends forecast to be paid prior to the each vesting date.  When performance rights vest, the amount in the share based  payments reserve relating to those rights are transferred to  share capital. When any vested performance rights lapse upon  employee termination, the amount in the share based payments  reserve relating to those rights is transferred to retained earnings. Liabilities for wages and salaries, including non-monetary  benefits, annual leave, and accumulating sick leave expected to  be settled within 12 months of the reporting date are recognised  in other payables in respect of employees’ services up to the  reporting date and are measured at the amounts expected  to be paid when the liabilities are settled. Liabilities for non- accumulating sick leave are recognised when the leave is  taken and measured at the rates paid or payable. The liability  for employee entitlements is carried at the present value of the  estimated future cash flows. Dividend distribution to the Company shareholders is recognised  as a liability in the Company’s and Group’s financial statements in  the period in which the dividends are approved by the Company’s  shareholders. The following are definitions of the terms used in the Cash Flow Statement: The liability for long service leave is recognised in the provision  for employee benefits and measured as the present value of  expected future payments to be made in respect of services  provided by employees up to the reporting date using the  projected unit credit method. Consideration is given to expected  future wage and salary levels, experience of employee  departures and periods of service. Expected future payments are  discounted using market yields at the reporting date on national  government bonds with terms to maturity and currency that  match, as closely as possible, the estimated future cash flows. The Employee Share Option Plan allows Group employees to  acquire shares of the Company. The fair value of options granted  is recognised as an employee expense in the Income Statement  with a corresponding increase in the employee share based  payments reserve. The fair value is measured at grant date and  spread over the vesting periods. The fair value of the options  granted is measured using the Monte Carlo simulation approach,  taking into account the terms and conditions upon which the  options are granted. When options are exercised the amount  in the share option reserve relating to those options, together  with the exercise price paid by the employee, is transferred to  share capital. When any vested options lapse, upon employee  There were no changes in the accounting policies during the period. d. Operating activities include all transactions and other events  that are not investing or financing activities. c. Financing activities are those activities which result in  changes in the size and composition of the capital structure of  the Company; b. Investing activities are those activities relating to the  acquisition, holding and disposal of property, plant and  equipment and of investments. Investments can include  securities not falling within the definition of cash; a. Cash comprises: cash at bank, cash on hand and overdraft  balances;