Creative 2000 Annual Report Download - page 22

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
Investments
Creative holds equity investments in various companies pursuant to which it has acquired anywhere from less than 1% to
100% of the issuer’s outstanding capital stock. Investments in which Creative acquires more than 50% of the outstanding
capital stock of an entity, or which are under the effective control of Creative, are treated as investments in subsidiaries, and
the balance sheets and results of operations of these subsidiaries are fully consolidated after making allowance for any
minority interests. Companies in which Creative’s investment totals between 20% and 50% of such company’s capital stock
are treated as associated companies and recorded on an equity basis, whereby Creative adjusts its cost of investments to
recognize its share of all post acquisition results of operations. Non quoted investments of less than 20% in an entity are
carried at cost. Management regularly reviews the assumptions underlying related sales, net income and cash flow forecasts
and other factors used in assessing the carrying values of such investments, and records write-downs to such investments
when necessary.
In accordance with Statement of Financial Accounting Standards No. 115 (SFAS 115), “Accounting for Certain Investments
in Debt and Equity Securities”, investments of less than 20% in an entity are classified as available-for-sale. Such investments
are reported at fair value with the unrealized gains and losses included as a separate component of shareholders’ equity.
Unrealized losses are charged against income when a decline in fair value is determined to be other than temporary. Realized
gains and losses upon the sale or disposition of such investments are based on the average cost of the specific investments
sold.
A summary of investments is as follows (in US$’000): As of June 30
2000 1999
Non quoted investments $ 106,519 $ 35,150
Quoted investments 289,369 35,155
Total investments $ 395,888 $ 70,305
Intangible assets
Intangible assets are stated at cost and relate principally to the acquisition of new subsidiaries accounted for under the
purchase method. Under this method, the purchase price has been allocated to the assets acquired, liabilities assumed and
in-process technology based on their estimated fair market values at the dates of acquisition. Amortization is computed using
the straight-line method over the estimated useful lives of the assets, ranging from one to seven years. Creative regularly
reviews the net realizable value of its intangible assets and various assumptions underlying the expected sales revenue and
net cash flow to be derived from such intangibles. Where projected cash flow is not sufficient to recover the net value of
the intangible assets, such excess is written off. At each of June 30, 2000 and 1999, amounts capitalized in connection with
these acquisitions was $66.5 million and their related accumulated amortization totaled $56.3 million and $43.5 million,
respectively.
Revenue recognition
Creative recognizes revenue from product sales when title transfers to the customer which, depending on the sales terms,
occurs when products are shipped to or are received by the customers. Allowances are established and regularly reviewed
by management to reflect an estimate of future sales returns from customers and expected price adjustments for sales to
distributors.