Notes to the Financial Statements (continued)  Where the GST incurred on a purchase of goods  and services is not recoverable from the taxation  authority, in which case the GST is recognised as  part of the cost of acquisition of the asset or as  part of the expense item as applicable; and Receivables and payables are stated with the  amount of GST included. 1.  Statement of Significant Accounting Policies (continued)  Income tax has been brought to account using a  method of tax effect accounting whereby income tax  expense for the period is calculated on the accounting  profit after adjusting for items which, as a result of  their treatment under income tax legislation, create  permanent differences between that profit and the  taxable income. The tax effect of timing differences  which arise from the recognition of revenue and  expense items in the accounts in periods different  from those in which they are assessable or allowable  for income tax purposes, are presented in the  Statement of Financial Position as a “future income  tax benefit” at the tax rate expected to apply when the  differences reverse. A future income tax benefit  relating to timing differences is only carried forward as  an asset where realisation of the benefit can be  regarded as being assured beyond reasonable doubt.  Revenues, expenses and assets are recognised net of  the amount of GST except:  Purchased goodwill is amortised on a straight line  basis over the period during which the benefits are  expected to arise, which is currently between five and  twenty years. The unamortised balance of goodwill is  reviewed at each balance date and charged to the  Statement of Financial Performance to the extent that  applicable future benefits are no longer probable.  On acquisition of a controlled entity, the difference  between the purchase consideration plus incidental  expenses and the fair value of identifiable net assets  acquired is initially brought to account as goodwill or  discount on acquisition.  Inventories are valued at the lower of cost and net  realisable value. Costs have been assigned to  inventory quantities on hand at balance date using a  weighted average basis.  The net amount of GST recoverable from, or payable  to, the taxation authority is included as part of  receivables or payables in the Statement of Financial  Position.  Cash flows are included in the Statement of Cash  Flows on a net basis and the GST component of cash  flows arising from investing and financing activities,  which is recoverable from, or payable to, the taxation  authority is classified as operating cash flows.  Commitments and contingencies are disclosed net of  the amount of GST recoverable from, or payable to,  the taxation authority.  Where title is not expected to pass to the lessee at the  end of the lease term the lease is classified as an  operating lease. Lease payments are charged to the  Statement of Financial Performance in the periods in  which they are incurred.  Direct finance receivables are recognised as receivables at the beginning of the lease term at the  present value of the minimum lease payments  receivable plus the present value of any unguaranteed  residual expected to accrue to the benefit of the  consolidated entity at the end of the lease term. The  discount rate used in determining the present value is  the interest rate implicit in the lease. Lease payments  are allocated between principal and interest components. Lease receivables are reduced by  payments of principal whilst the interest component is  credited to the Statement of Financial Performance.  Provision has been made in the financial statements  for benefits accruing to employees in relation to such  matters as annual leave, long service leave and  workers compensation. All employee benefit liabilities  are measured at the present value of the estimated  future cash outflow to be made in respect of services  provided by employees up to reporting date. All on- costs, including payroll tax, workers’ compensation  premiums and fringe benefits tax are included in the  determination of the provisions. Employee entitlement  expenses and revenues are charged against profits on  a net basis in their respective categories.  HARVEY NORMAN HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES – ANNUAL REPORT 2003  30  (l) Provisions for Employee Benefits  Direct finance leases  Company as lessor  Operating leases  Company as lessee  (j) Leases Goods and Services Tax (GST)  (h) Inventories  (i) Intangibles Goodwill on Acquisition  Income Tax  (k) Taxes 