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for the year ended 30 june 2008

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contents page financial report income statement statement of recognised income and expense balance sheet cash flow statement notes to the financial statements directors declaration lead auditors independence declaration independent auditors report 2 3 4 5 s 34 35 36 -1-

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bhp billiton umited single parent entity income statement for the year ended 30 june 2008 notes revenue 2008 us$m 8,861 4,763 804 1,891 3,011 68 3,079 3,079 2007 us$m 3,588 2,555 950 1,048 935 15 951 951 2 expenses excluding net finance costs financial income financial expense profit before taxation income tax credit profit after taxation profit attributable to members of bhp billiton limited single parent entity the accompanythg notes form part of these financial statements -2-

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bhp billiton limited single parent entity statement of recognised income and expense for the year ended 30 june 2008 2008 us$m amounts recognised directly in equity actuarial gainsllosses on pension plans changes in fair value of shares in related parties see note 21 tax on items recognised directly in or transferred from equity net incomelloss recognised directly in equity profit after taxation total recognised income and expense for the year 11 130 4 189 3079 2890 2007 us$m 7 130 26 111 951 1,062 the accompanying notes form part of these financial statements -3-

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bhp billiton limited single parent entity balance sheet as at 30 june 2008 notes assets current assets cash and cash equivalents receivables a other total current assets non-current assets receivables a other financial assets at cost other financial assets at fair value property plant and equipment deferred tax assets other total non-current assets total assets liabilities current liabilities payables a provisions current tax payable total current liabilities non-current liabilities payables a provisions total non-current liabilities total liabilities net assets equity share capital reserves retained earnings total equity 2008 us$m 2007 us$m 6 7 8 9 23,668 810 14,926 7 23,684 15,736 9 10 11 12 13 14 3,183 14,506 1 332 183 18,205 41,889 3,098 13,084 1,062 1 210 17455 33,191 15 16 17 27,707 267 1,000 28,974 19,923 225 1,019 21.167 18 19 2,040 234 2,274 31.248 iq,641 2,222 183 2,405 23.572 9,619 20 21 22 938 681 9,022 10,641 932 727 7,960 9,619 a the majorhy of these balances represent amounts which are receivable from and payable to controlled entities within the group being bhp billiton limited bhp billiton plc and their controlled entities the company has control of payments of these amounts and will manage them to ensure that at all times it has sufficient funds available to meet its commitments the accompanying notes form part of these financial statements -4-

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bhp billiton limited single parent entity cash flow statement for the year ended 30 june 2008 2008 us$m 2007 us$m notes operating activities profit before taxation adjustments for employee share awards expense loss on cancellation of bhp billiton plc shares dividend income net finance costs changes in assets and liabilities receivables other assets payables provisions cash generated from operations 3,011 62 4,008 8,595 1,087 28 190 40 81 604 935 51 1,906 3,317 98 5 2 185 203 302 dividends received interest received interest paid income tax paid net operating cash flows investing activities purchases of or increased investment in subsidiaries operations and jointly controlled entities net of their cash net investing cash flows financing activities proceeds from ordinary share issues purchase of shares by employee share ownership plan trusts share buy back bhp billiton limited share buy back bhp billiton plc dividends paid net financing from related entities net financing cash flows net increaseldecrease in cash and cash equivalents cash and cash equivalents net of overdrafts at beginning of period cash and cash equivalents net of overdrafts at end of period a comparative periods have been restated as described in note 1 6 8,595 796 970 2,178 5,639 3,317 950 671 1,894 l40 1,422 1,422 259 259 24 230 3,115 1,881 188 t5i4 797 809 8 22 124 2,824 2,799 1,348 6128 345 796 -efectorignuyexchartngsocahdequivlnts413 809 the accompanying notes form part of these financial statements -5-

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bhp billiton limited single parent entity notes to financial statements 30 june 2008 contents of the notes to the financai statements 1 2 accounting pohcies revenue page 7 16 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 expenses exceptional items income tax credit current assets cash and cash equivalents current assets receivables current assets other non-current assets receivables non-current assets other financial assets at cost non-current assets other financial assets at fair value non-current assets property plant and equipment non-current assets deferred tax non-current assets other current liabilities payables current liabilities provisions current liabilities current tax liabilities non-current liabilities payables non-current liabilities provisions 16 17 18 18 19 19 19 19 20 20 20 21 21 22 22 22 23 20 21 22 23 24 25 26 27 28 29 30 31 share capital reserves retained earnings dividends financial risk management key management personnel auditors remuneration contingent liabilities commitments pensions and other post-retirement obligations related parties employee share ownership plans 23 24 24 25 25 28 28 28 29 29 32 32 32 33 34 subsequent events non-cash financing and investing activities financing facilities 32 33 33 -6-

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bhp billiton limited single parent entity notes to financial statements 30 june 2008 continued i accounting policies the principal accounting policies adopted in the preparation of the financial report are set out below basis of preparation this general purpose financial report for the year ended 30 june 2008 has been prepared in accordance with the requirements of the australian corporations act 2001 and with a o · australian accounting standards being australian equivalents to international financial reporting standards as issued by the australian accounting standards board aasb and interpretations effective as of 30 june 2008 international financial reporting standards and interpretations as issued by the international accounting standards board effective as of 30 june 2008 those standards and interpretations adopted early for each applicable reporting period as described below the above standards and interpretations are collectively referred to as ifrs in this report pursuant to section 340 of the corporations act 2001 the australian securities and investments commission issued an order dated 8 september 2006 that granted relief from the requirement under the act to distribute single entity financial statements of 8hp billiton limited bhp billiton to its members the annual report for the year ended 30 june 2008 of the bhp billiton group group is distributed to members and includes in a note to the financial statements the income statement the balance sheet the statement of recognised income and expense and cash flow statement of bhp billiton single parent entity the relief order requires the single parent entity financial statements to be available on the company s website and to be available to members by request free of charge the relief order also grants bhp billiton relief from the following requirements of paragraph 2952 b and subsection 2961 of the corporations act 200 concerning inclusions of the following information in the single parent entity financial statements i the consolidated financial statements of the bhp billiton group and notes thereto ii any segment information iii any earnings per share information iv any key management personnel disclosures v the identity and country of incorporation of controlled entities vi any other note disclosures required by accounting standards in relation to the single parent entity financial statements that are included in the full financial report of the bhp billiton group on 29 june 2001 bhp billiton plc previously known as billiton plc a uk listed company and bhp billiton previously known as bhp limited an australian listed company entered into a dual listed companies dlc merger this was effected by contractual arrangements between the companies and amendments to their constitutional documents the dlc arrangements including dividend equalisalion are detailed under dual listed companies structure and basis of preparation of financial statements within note 1 accounting policies of the bhp billiton group financial statements for the year ended 30 june 2008 the principal standards that have been adopted for the first time in these financial statements are a a lfp,s 7/aasi3 7 financial lnstrurnents disclosures ifrs 7/aasb 7 modifies the basis and details of disclosures concerning financial instruments but does not impact the recognition or measurement of financial instruments amendment to las 1 iaasb 101 presentation of financial statements this amendment requires new disclosures concerning the objectives policies and processes for managing capital aasb 2007-4 amendments to australian accounting standards arising from ed 151 and other amendments pasb 2007-4 reinstates optional accounting treatments permitted by ifrs that were not initially available under australian accounting standards refer change in accounting policy below for the impact of the adoption of aasb 2007-4 on the financial statements -7 o

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bhp billiton limited single parent entity notes to financial statements 30 june 2008 continued i accounting policies continued the following standards and interpretations may have an impact on the company or group but are not yet effective these standards and interpretations are available for early adoption in the 30 june 2008 financial year but have not been applied in the preparation of these financial statements ifric 12/aasb interpretation 12 service concession arrangements addresses accounting for obligations undertaken and the rights received ri service concession arrangements by service concession operators ifric 14iaasb interpretation 14 ias 19-the limit ona defined benefitasset minimum funding requirements and their interaction provides guidance on how to assess the limit on the amount of the surplus that can be recognised as an asset for defined benefit funds in ifrs 19/aasb 119 employee benefits · amendment to ifrs 2/aasb 2 share based payment modifies the definition of vesting conditions and broadens the scope of accounting for cancellations o amendment to ifrs 3/aasb 3 business combinations this amendment modifies the application of acquisition accounting for business combinations associated amendments to las 27 aasb 127 consolidated and separate financial statements change the accounting for non-controlling interests ifrs biaasb 8 operating segments specifies the basis and details of disclosure concerning operating segments · amendment to las 27/aasb 127 consolidated and separate financial statements results in the removal of the definition of the cost method resulting in all dividends being recognised as income as well as prescribing accounting for new non-operating holding companies · improvements to ifrss 2008 aasb 2008-5 amendments to australian accounting standards arising from the annual improvements project and aasb 2008-6 further amendments to australian accounting standards arising from the annual improvements project include a collection of minor amendments to ifrs the potential impacts on the financial statements of bhp billiton limited single parent entity of adopting these standards and interpretations have not yet been determined basis of measurement the financial report is drawn up on the basis of historical cost principles except for derivative financial instruments and investments held for trading or available for sale and certain financial assets designated as being measured at fair value currency of presentation all amounts are expressed in millions of us dollars unless otherwise stated consistent with the functional currency of bhp billiton s operations change in accounting policy the accounting policies are consistent with those applied in the prior year except for the impact of adopting aasb 2007-4 amendments to australian accounting standards arising from ed 151 and other amendments asb 2007-4 reinstates optional accounting treatments permitted by ifrs that were not initially available under australian accounting standards the principal impact of aasb 2007-4 is described below cash flow presentation bhp billiton limited has elected to adopt the indirect method of cash flow presentation as permitted by aasb 2007-4 the company believes this change in presentation more effectively conveys the relationship between its financial performance and operating cash flows foreign currencies bhp billiton s reporting currency and functional currency is the us dollar as this is the principal currency of the economic environment in which it operates -8-

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bhp billiton limited single parent entity notes to financial statements 30 june 2008 continued i accounting policies continued transactions denominated in foreign currencies currencies other than the functional currency of an operation are recorded using the exchange rate ruling at the date of the underlying transaction monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at year end and the gains or losses on retranslation are included in the income statement with the exception of foreign exchange gains or losses on foreign currency provisions for site closure and rehabilitation which are capitalised in property plant and equipment and foreign exchange gains and losses on foreign exchange currency borrowings designated as a hedge of the net assets of foreign operations revenue sales revenue revenue from the disposal of assets is recognised when persuasive evidence usually in the form of an executed sales agreement of an arrangement exists indicating there has been a transfer of risks and rewards to the customer no further work or processing is required by the company the quantity and the quality of the goods has been determined with reasonable accuracy the price is fixed or determinable and collectibility is reasonably assured this is generally when title passes dividend revenue dividend revenue from controlled entities is recognised when the dividends are declared by the controlled entities interest revenue interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset royalty revenue and management fees royalty revenue and management fees are recognised on an accruals basis in accordance with the substance of the relevant agreement taxation taxation on the profit or loss for the year comprises current and deferred tax taxation is recognised in the income statement except to the extent that it relates to items recognised directly in equity in which case the tax is recognised in equity current tax is the expected tax payable on the taxable income for the year using rates enacted or substantively enacted at the year end and includes any adjustment to tax payable in respect of previous years deferred tax is provided using the balance sheet liability method providing for the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax assessment or deduction purposes where an asset has no deductible or depreciable amount for income tax purposes but has a deductible amount on sale or abandonment for capital gains tax purposes that amount is included in the determination of temporary differences the tax effect of certain temporary differences is not recognised principally with respect to goodwill temporary differences arising on the initial recognition of assets and liabilities other than those arising in a business combination or in a manner that initially impacted accounting or taxable profit and temporary differences relating to investments in subsidiaries joint ventures and associates to the extent that bhp billiton is able to control the reversal of the temporary difference and the temporary difference is not expected to reverse in the foreseeable future the amount of deferred tax recognised is based on the expected manner and timing of realisation or settlement of the carrying amount of assets and liabilities with the exception of items which have a tax base solely derived under capital gains tax legislation using tax rates enacted or substantively enacted at period end to the extent that an item s tax base is solely derived from the amount deductible under capital gains tax legislation deferred tax is determined as if such amounts are deductible in determining future assessable income a deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised deferred tax assets are reviewed at each balance sheet date and amended to the extent that it is no longer probable that the related tax benefit will be realised deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and bhp billiton has both the right and the intention to settle its current tax assets and liabilities on a net or simultaneous basis -9-

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bhp billiton limited single parent entity notes to financial statements 30 june 2008 continued i accounting policies continued royalties and resource rent taxes are treated as taxation arrangements when they have the characteristics of a tax this is considered to be the case when they are imposed under government authority and the amount payable is calculated by reference to revenue derived net of any allowable deductions after adjustment for items comprising temporary differences for such arrangements current and deferred tax is provided on the same basis as described above for other forms of taxation obligations arising from royalty arrangements that do not satisfy these criteria are recognised as current provisions and included in expenses tax consolidation bhp billiton and its wholly-owned australian resident entities are taxed as a single entity the entities within the tax consolidated group have entered into a tax sharing agreement and a tax consolidation agreement with bhp billiton under the tax sharing agreement the entities in the tax consolidated group agree to pay a tax equivalent amount to bhp billiton for current income tax payable or to receive a tax equivalent amount from bhp billiton for current income tax receivable andfor tax losses the contributions of each entity are determined and recognised as if it were a stand-alone entity and essentially this method of calculating the contribution requires the calculation of income tax expense as if the entity had not been a member of the tax consolidated group dividend franking account tax consolidation legislation requires a tax consolidated group to keep a single franking account accordingly upon formation of the tax consolidated group franking credits were transferred to the ultimate parent entity leased assets assets held under leases which result in bhp billiton receiving substantially all the risks and rewards of ownership of the asset finance leases are capitalised at the lower of the fair value of the property plant and equipment or the estimated present value of the minimum lease payments the corresponding finance lease obligation is included within interest bearing liabilities the interest element is allocated to accounting periods during the lease term to reflect a constant rate of interest on the remaining balance of the obligation for each accounting period operating lease assets are not capitalised and rental payments are included in the income statement on a straight-line basis over the lease term provision is made for the present value of future operating lease payments in relation to surplus lease space when it is first determined that the space will be of no probable future benefit operating lease incentives are recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and reduction of the liability property plant and equipment property plant and equipment is recorded at cost less accumulated depreciation and impairment charges some assets acquired prior to 1 july 1998 are measured at deemed cost being the revalued amount of the asset immediately prior to that date subsequent to 1 july 1998 the cost regime was applied to all assets cost is the fair value of consideration given to acquire the asset at the time of its acquisition or construction and includes the direct cost of bringing the asset to the location and condition necessary for operation and the direct cost of dismantling and removing the asset disposals disposals are taken to account in the income statement where the disposal involves the sale or abandonment of a significant business or all of the assets associated with such a business the gain or loss is disclosed as an exceptional item depreciation of property p/ant and equipment the carrying amounts of property plant and equipment including the initial and subsequent capital expenditure are depreciated to their estimated residual value over the estimated useful lives of the specific assets concerned or the estimated life of the associated mine or mineral lease if shorter estimates of residual values and useful lives are reassessed annually and any change in estimate is taken into account in the determination of remaining depreciation charges the major categories of property plant and equipment are depreciated on a unit of production and/or straight-line basis using estimated lives as follows buildings land plant machinery and equipment -1025 to 50 years not depreciated 4 to 30 years o

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bhp billiton limited single parent entity notes to financial statements 30 june 2008 continued i accounting poilcies corithiued impairment of non-current assets formal impairment tests are carried out annually for goodwill formal impairment tests for all other assets are performed when there is an indication of impairment at each reporting date an assessment is made to determine whether there are any indications of impairment bhp billiton conducts annually an internal review of asset values which is used as a source of information to assess for any indications of impairment external factors such as changes in expected future processes costs and other market factors are also monitored to assess for indications of impairment if any indication of impairment exists an estimate of the asset s recoverable amount is calculated the recoverable amount is determined as the higher of the fair value less direct costs to sell for the asset and the assets value in use if the carrying amount of the asset exceeds its recoverable amount the asset is impaired and an impairment loss is charged to the income statement so as to reduce the carrying amount in the balance sheet to its recoverable amount fair value is determined as the amount that would be obtained from the sale net of direct selling costs of the asset in an arm s length transaction between knowledgeable and willing parties fair value for mineral assets is generally determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset including any expansion prospects and its eventual disposal using assumptions that an independent market participant may take into account these cash flows are discounted by an appropriate discount rate to arrive at a net present value of the asset value in use is determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset in its present form and its eventual disposal value in use is determined by applying assumptions specific to bhp billitons continued use and cannot take into account future development these assumptions are different to those used in calculating fair value and consequently the value in use calculation is likely to give a different result usually lower to a fair value calculation in testing for indications of impairment and performing impairment calculations assets are considered as collective groups referred to as cash generating units cash generating units are the smallest identifiable group of assets liabilities and associated goodwill that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets the impairment assessments are based on a range of estimates and assumptions including estimates/assumptions future production commodity prices exchange rates discount rates finance costs basis proved and probable reserves resource estimates and in certain cases expansion projects forward market and contract prices and longer-term price protocol estimates current forward market exchange rates cost of capital risk adjusted for the resource concerned finance costs are generally expensed as incurred except where they relate to the financing of construction or development of qualifying assets requiring a substantial period of time to prepare for their intended future use finance costs are capitalised up to the date when the asset is ready for its intended use the amount of finance costs capitalised before the effects of income tax for the period is determined by applying the interest rate applicable to appropriate borrowings outstanding during the period to the average amount of capitalised expenditure for the qualifying assets during the period closure and rehabilitation the mining extraction and processing activities of the bhp billiton group normally give rise to obligations for site closure or rehabilitation closure and rehabilitation works can include facility decommissioning and dismantling removal or treatment of waste materials site and land rehabilitation the extent of work required and the associated costs are dependent on the requirements of relevant authorities and the bhp billiton group s environmental policies -1 1

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bhp billiton limited single parent entity notes to financial statements 30 june 2008 continued i accounting policies continued provisions for the cost of each closure and rehabilitation program are recognised at the time that environmental disturbance occurs when the extent of disturbance increases over the life of an operation the provision is increased accordingly costs included in the provision encompass all closure and rehabilitation activity expected to occur progressively over the life of the operation and at the time of closure in connection with disturbances at the reporting date routine operating costs that may impact the ultimate closure and rehabilitation activities such as waste material handling conducted as an integral part of a mining or production process are not included in the provision costs arising from unforeseen circumstances such as the contamination caused by unplanned discharges are recognised as an expense and liability when the event gives rise to an obligation which is probable and capable of reliable estimation closure and rehabilitation provisions are measured at the expected value of future cash flows discounted to their present value and determined according to the probability of alternative estimates of cash flows occurring for each operation discount rates used are specific to the country in which the operation is located significant judgements and estimates are involved in forming expectations of future activities and the amount and timing of the associated cash flows those expectations are formed based on existing environmental and regulatory requirements or if more stringent bhp billiton group environmental policies which give rise to a constructive obligation when provisions for closure and rehabilitation are initially recognised the corresponding cost is capitalised as an asset representing part of the cost of acquiring the future economic benefits of the operation the capitalised cost of closure and rehabilitation activities is recognised in property plant and equipment and depreciated accordingly the value of the provision is progressively increased over time as the effect of discounting unwinds creating an expense recognised in financial expenses closure and rehabilitation provisions are also adjusted for changes in estimates those adjustments are accounted for as a change in the corresponding capitalised cost except where a reduction in the provision is greater than the undepreciated capitalised cost of the related assets in which case the capitalised cost is reduced to nil and the remaining adjustment is recognised in the income statement changes to the capitalised cost result in an adjustment to future depreciation charges adjustments to the estimated amount and timing of future closure and rehabilitation cash flows are a normal occurrence in light of the significant judgements and estimates involved factors influencing those changes include revisions to estimated reserves resources and lives of operations developments in technology regulatory requirements and environmental management strategies changes in the estimated costs of anticipated activities including the effects of inflation and movements in foreign exchange rates · movements in interest rates affecting the discount rate applied provision for employee benefits provision is made in the financial statements for all employee benefits including on-costs in relation to industry-based long service leave funds bhp billiton s liability including obligations for funding shortfalls is determined after deducting the fair value of deducted assets of such funds liabilities for wages and salaries including non-monetary benefits annual leave and accumulating sick leave obliged to be settled within 12 months of the reporting date are recognised in other creditors or provision for employee benefits 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 long service leave for which settlement within 12 months of the reporting date cannot be deferred is recognised in the current provision for employee benefits and is measured in accordance with annual leave described above the liability for long service leave for which settlement can be deferred beyond 12 months from the reporting date is recognised in the non-current 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 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 outflows -12-

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bhp billiton limited single parent entity notes to financial statements 30 june 2008 continued i accounting policies continued share-based payments the fair value at grant date of equity settled share awards granted on or after 8 november 2002 is charged to the income statement over the period for which the benefits of employee services are expected to be derived the corresponding accrued employee entitlement is recorded in the employee share awards reserve the fair value of awards is calculated using an option pricing model which considers the following factors · · a o o · a exercise price expected life of the award current market price of the underlying shares expected volatility expected dividends risk-free interest rate market-based performance hurdles for equity settled share awards granted on or before 7 november 2002 and that remained unvested at 1 july 2004 the estimated cost of share awards is charged to the income statement from grant date to the date of expected vesting the estimated cost of awards is based on the market value of shares at the grant date or the intrinsic value of options awarded adjusted to reflect the impact of performance conditions where applicable where awards are forfeited because non-market based vesting conditions are not satisfied the expense previously recognised is proportionately reversed where bhp billiton shares are acquired by on-market purchases prior to settling vested entitlements the cost of the acquired shares is carried as treasury shares and deducted from equity when awards are satisfied by delivery of acquired shares any difference between their acquisition cost and the remuneration expense recognised is charged directly to retained earnings the tax effect of awards granted is recognised in income tax expense except to the extent that the total tax deductions are expected to exceed the cumulative remuneration expense in this situation the excess of the associated current or deferred tax is recognised in equity as part of the employee share awards reserve the accounting policy is applied with respect to all rights and options granted over bhp billiton shares including those granted to employees of other group companies however the cost of rights and options granted is recovered from subsidiares of the group where the participants are employed superannuation pensions and other post-retirement benefits bhp billiton operates or participates in a number of pension including superannuation schemes throughout the world the funding of the schemes complies with local regulations the assets of the schemes are generally held separately from those of bhp billiton and are administered by trustees or management boards for defined contribution schemes or those operated on an industry-wide basis where it is not possible to identify assets attributable to the participation by the bhp billiton s employees the pension charge is calculated on the basis of contributions payable for defined benefit schemes the cost of providing pensions is charged to the income statement so as to recognise current and past service costs interest cost on defined benefit obligations and the effect of any curtailments or settlements net of expected returns on plan assets actuarial gains and losses are recognised in full directly in equity an asset or liability is consequently recognised in the balance sheet based on the present value of defined benefit obligations less any unrecognised past service costs and the fair value of plan assets except that any such asset can not exceed the total of unrecognised past service costs and the present value of refunds from and reductions in future contributions to the plan financial instruments all financial assets are initially recognised at the fair value of consideration paid subsequently financial assets are carried at fair value or amortised cost less impairment charges where non-derivative financial assets are carried at fair value gains and losses on remeasurement are recognised directly in equity unless the financial assets have been designated as being held at fair value through profit in which case the gains and losses are recognised directly in the income statement financial assets are designated as being held at fair value through profit when this is necessary to reduce measurement inconsistencies for related assets and liabilities all financial liabilities other than derivatives are initially recognised at fair value of consideration received net of transaction costs as appropriate initial cost and subsequently carried at amortised cost -13-

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bhp bifliton limited single parent entity notes to financial statements 30 june 2008 continued i accounting policies continued derivatives including those embedded in other contractual arrangements but separated for accounting purposes because they are not clearly and closely related to the host contract are initially recognised at fair value on the date the contract is entered into and are subsequently remeasured at their fair value the method of recognising the resulting gain or loss on remeasurement depends on whether the derivative is designated as a hedging instrument and if so the nature of the item being hedged the measurement of fair value is based on quoted market prices where no price information is available from a quoted market source alternative market mechanisms or recent comparable transactions fair value is estimated based on bhf billiton s views on relevant future prices net of valuation allowances to accommodate liquidity modelling and other risks implicit in such estimates forward exchange contracts held for hedging purposes are generally accounted for as cash flow hedges interest rate swaps held for hedging purposes are generally accounted for as fair value hedges derivatives embedded within other contractual arrangements and commodity based transactions executed through derivative contracts do not qualify for hedge accounting fair value hedges changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk any difference between the change in fair value of the derivative and the hedged risk constitutes ineffectiveness of the hedge and is recognised immediately in the income statement cash flow hedges the effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve the gain or loss relating to the ineffective portion is recognised immediately in the income statement amounts accumulated in equity are recycled in the income statement in the periods when the hedged item affects profit or loss however when the forecast transaction that is hedged results in the recognition of a non-financial asset for example plant and equipment purchases or a non-financial liability the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the initial cost or carrying amount of the asset or liability when a hedging instrument expires or is sold or terminated or when a hedge no longer meets the criteria for hedge accounting any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement when a hedged forecast transaction is no longer expected to occur the cumulative hedge gain or loss that was reported in equity is immediately transferred to the income statement derivatives that do not qualify for hedge accounting certain derivative instruments do not qualify for hedge accounting changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement available for sale and trading instruments available for sale and trading investments are measured at fair value gains and losses on the remeasurement of trading investments are recognised directly in the income statement gains and losses on the remeasurement of available for sale investments are recognised directly in equity and subsequently recognised in the income statement when realised by sale or redemption or when a reduction in fair value is judged to represent an impairment application of critical accounting policies and estimates the preparation of bhp billiton s financial statements requires management to make judgements and estimates and form assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported revenue and expenses during the periods presented therein on an ongoing basis management evaluates its judgements and estimates in relation to assets liabilities contingent liabilities revenue and expenses management bases its judgements and estimates on historical experience and on other various factors that it believes to be reasonable under the circumstances the results of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources actual results may differ from these estimates under different assumptions and conditions further information concerning key sources of estimation and uncertainty that affect entities in the bhp billiton group including bhp billiton is detailed under application of critical accounting policies and estimates within note ito the bhp billiton group financial statements -14-

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