Creative 2009 Annual Report Download - page 54

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54
CREATIVE฀TECHNOLOGY฀LTD฀AND฀ITS฀SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
– For the financial year ended 30 June 2009
30. FINANCIAL RISK MANAGEMENT (cont’d)
(b) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the
Group. Financial instruments that potentially subject the Group to significant concentrations of credit risk consist principally
of cash and cash equivalents and trade receivables. The Group deals only with financial institutions with high credit
ratings and limits the amount of credit exposure to any one financial institution. The Group sells its products to original
equipment manufacturers, distributors and key retailers. The Group believes that the concentration of credit risk in its trade
receivables is substantially mitigated due to performance of ongoing credit evaluations of its customers’ financial condition,
use of short collection terms, use of letters of credit in certain circumstances, procurement of credit insurance coverage and
the geographical dispersion of sales. The Group establishes allowances for doubtful accounts, returns and discounts for
specifically identified doubtful accounts, returns and discounts based on credit profiles of its customers, current economic
trends, contractual terms and conditions and historical payment, returns and discount experience.
The maximum exposure to credit risk for each class of financial instruments is the carrying amount of that class of financial
instruments presented on the balance sheet.
As at 30 June 2009, there were no significant concentrations of credit risk and no customer (2008: Nil) individually accounted
for 10% or more of net accounts receivable.
Bank deposits that are neither past due nor impaired are mainly deposits with banks with high credit-ratings assigned by
international credit-rating agencies. Trade receivables that are neither past due nor impaired are substantially companies
with a good collection track record with the Group.
The age analysis of trade receivables is as follows:
฀ Group
฀ ฀ 2009฀ 2008฀
฀ US$’000฀ US$’000
฀
฀ Past฀due฀1฀to฀60฀days฀ 7,996฀ 9,384
฀ Past฀due฀61฀to฀120฀days฀ 3,741฀ 2,453
฀ Past฀due฀over฀120฀days฀ 10,925฀ 9,055
฀ ฀ 22,662฀ 20,892
฀ Less:฀Allowance฀for฀impairment฀ (5,379)฀ (4,513)
฀ ฀ 17,283฀ 16,379
(c) Liquidity risk
To manage liquidity risk, the Group monitors its net operating cash flows and maintains an adequate level of cash and cash
equivalents and secured committed funding facilities from financial institutions. In assessing the adequacy of these funding
facilities, management reviews its working capital requirements regularly.
The bank borrowings were fully repaid during the current financial year. As at 30 June 2009, the entire Group’s financial
liabilities mature in less than 1 year’s time. As at 30 June 2008, substantially all the Group’s financial liabilities mature in
less than 1 year’s time, except its finance lease liabilities maturing between 1 to 5 years’ time.
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