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Randgold Resources Annual Report 2005 51

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

disturbance takes place. The estimates are reviewed annually to take into account the effects of inflation and changes in

estimates and are discounted using rates that reflect the time value of money. Annual increases in the provision due to

the unwinding of the discount are recognised in the income statement as a finance cost. The present value of additional

disturbances and changes in the estimate of the rehabilitation liability are capitalised to mining assets against an increase in

the rehabilitation provision. The rehabilitation asset is amortised as noted previously. Rehabilitation projects undertaken,

included in the estimates, are charged to the provision as incurred.

Environmental liabilities, other than rehabilitation costs, which relate to liabilities arising from specific events, are expensed

when they are known, probable and may be reasonably estimated.

PROVISIONS: Are recognised when the group has a present legal or constructive obligation as a result of past events where

it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable

estimate of the amount of the obligation can be made.

BORROWINGS: Are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated

at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in

the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as

current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the

balance sheet date.

ACCOUNTS PAYABLE: Are stated at cost adjusted for payments made to reflect the value of the anticipated economic

outflow of resources.

DEFERRED TAXATION: Deferred tax is provided in full, using the liability method, on temporary differences arising between

the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the

temporary difference arises from initial recognition of an asset or liability in a transaction other than a business combination

that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred tax is

determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are

expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets

are recognised to the extent that it is probable that future taxable profit will be available against which the temporary

differences can be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries and

joint ventures, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable

that the temporary difference will not reverse in the foreseeable future.

EMPLOYEE BENEFITS:

(a) Pension obligations

The group has defined contribution plans. A defined contribution plan is a pension plan under which the group pays

fixed contributions into a separate entity. The group has no legal or constructive obligations to pay further contributions

if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current

and prior periods. For defined contribution plans, the group pays contributions to publicly or privately administered

provident funds on a mandatory, contractual or voluntary basis. The group has no further payment obligations once the

contributions have been paid. The contributions are recognised as employee benefit expense when they are due.

Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments

is available.

(b) Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an

employee accepts voluntary redundancy in exchange for these benefits. The group recognises termination benefits

when it is demonstrably committed to either: terminating the employment of current employees according to a detailed

formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage

voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present

value.

The group recognises a liability and an expense for bonuses. The group recognises a provision where contractually

obliged or where there is a past practice that has created a constructive obligation.

(d) Share options

The fair value of the employee services received in exchange for the grant of options or shares after

7 November 2002 is recognised as an expense. The total amount to be expensed rateably over the vesting period is

determined by reference to the fair value of the options or shares determined at the grant date, excluding the impact of

any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of

options that are expected to become exercisable or the number of shares that the employee will ultimately receive. This

estimate is revised at each balance sheet date and the difference is charged or credited to the income statement, with

a corresponding adjustment to equity. The proceeds received on exercise of the options net of any directly attributable

transaction costs are credited to equity. Refer to note 6.

FINANCE LEASES: Leases of plant and equipment where the group assumes a significant portion of risks and rewards of

ownership are classified as a finance lease. Finance leases are capitalised at the estimated present value of the underlying

lease payments. Each lease payment is allocated between the liability and the finance charges to achieve a constant rate

on the finance balance outstanding. The interest portion of the finance payment is charged to the income statement over the

lease period. The plant and equipment acquired under the finance lease are depreciated over the useful lives of the assets,

or over the lease term if shorter.

REVENUE RECOGNITION: The company enters into contracts for the sale of gold. Revenue arising from gold sales under

these contracts is recognised when the price is determinable, the product has been delivered in accordance with the terms

of the contract, the significant risks and rewards of ownership have been transferred to the customer and collection of the

sales price is reasonably assured. These criteria are met when the gold leaves the mine’s smelt house. As sales from gold

contracts are subject to customer survey adjustment, sales are initially recorded on a provisional basis using the group’s best

estimate of the contained metal. Subsequent adjustments are recorded in revenue to take into account final assay and

weight certificates from the refinery, if different from the initial certificates. The differences between the estimated and actual

contained gold have not been significant historically.