Notes to the financial statements | Note 9.3

Summary of significant accounting policies

Non-distributable reserves

Non-distributable reserves include reserves that have been grouped together as these are accounting reserves, which have arisen as a result of the specific requirements in the accounting standards.

Non-distributable reserves include the following:

• Translation reserve: comprises foreign currency translation differences arising from the translation of financial statements of the Group's foreign entities into South African rand;
• Treasury shares: the reserve also represents the treasury shares as well as amounts paid by Telkom to its subsidiary, Rossal No 65 (Pty) Ltd, for the acquisition of Telkom's shares to be utilised in terms of the Telkom share scheme;
• Shares repurchased for the purpose of the Telkom Group employee share scheme; and
• Revaluation of the sinking fund investment reserve: the fair value gains from the sinking fund investment were recognised in profit or loss in the prior years. The fair value gains were transferred to the non-distributable reserves until the date that the investment and corresponding fair value gains are realised. On this date, the fair value gains are transferred back to retained earnings.

Treasury shares

Where the Group acquires shares for purposes of its employee share scheme, such shares are measured at acquisition cost and disclosed as a reduction of equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group's own equity instruments. Such shares are not remeasured for changes in fair value. Any difference between the historical par value of the shares acquired and the consideration transferred for the acquisition of the shares is accounted for as an adjustment to retained earnings.

Where the Group chooses or is required to buy equity instruments from another party to satisfy its obligations to its employees under the share-based payment arrangement by delivery of its own shares, the transaction is accounted for as equity-settled. This applies regardless of whether the employee's rights to the equity instruments were granted by the Group itself, or by its shareholders, or were settled by the Group itself or its shareholders.