Creative 2010 Annual Report Download - page 33

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CREATIVE TECHNOLOGY LTD AND ITS SUBSIDIARIES
2.22 Dividends to Company’s shareholders
Dividends to the Company’s shareholders are recognised when the dividends are approved for payment.
3. CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGEMENTS
Estimates, assumptions and judgements are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
(a) Revenue recognition
Allowances are provided for estimated returns and discounts. Management analyses historical returns, current economic trends and
changes in customer demand and acceptance of its products when evaluating the adequacy of the sales returns allowance. Such
allowances are adjusted periodically to reect actual and anticipated experience. When recognising revenue, the Group records
estimated reductions to revenue for customer and distributor programs and incentive offerings, including price protection, promotions,
other volume-based incentives and rebates. Signicant management judgement and estimates must be used in connection with
establishing these allowances in any accounting period. The Group may take action when necessary in response to market conditions
to increase customer incentive offerings, possibly resulting in an incremental reduction of revenue at the time the incentive is offered.
The Group’s net revenue for the nancial year ended 30 June 2010 was US$275,307,000 (2009: US$466,074,000).
(b) Impairment of loans and receivables
The Group assesses at each balance sheet date whether there is any objective evidence that a nancial asset is impaired.
To determine whether there is objective evidence of impairment, the Group considers factors such as the probability of
insolvency or signicant nancial difculties of the debtor and default or signicant delay in payments.
Where there is objective evidence of impairment, the amount and timing of future cash ows are estimated based on historical
loss experience for assets with similar credit risk characteristics.
(c) Product warranties
The warranty period for the bulk of the Group’s products typically ranges between 1 to 3 years. The product warranty
provision reects management’s best estimate of probable liability under its product warranties. Management determines the
warranty provision based on known product failures (if any), historical experience, and other currently available evidence.
If actual experience of product returns or cost of repair differs from management’s estimates, revisions to the estimated
warranty provision would be required and could have a material effect on the Group’s future results of operations. The
Group’s warranty provision as at 30 June 2010 was US$2,784,000 (2009: US$2,899,000).
(d) Valuation of inventories
The Group states inventories at the lower of cost and net realisable value. The Group records a write-down for inventories
of components and products which have become obsolete or are in excess of anticipated demand or net realisable value.
Management performs a detailed assessment of inventory at each balance sheet date to establish provisions for excess and
obsolete inventories. Management’s evaluation includes a review of, among other factors, historical sales, current economic
trends, forecasted sales, demand requirements, product lifecycle and product development plans, quality issues, and current
inventory levels. The markets for PC peripherals and personal digital entertainment products are subject to a rapid and
unpredictable pace of product and component obsolescence and demand changes. If future demand or market conditions for
the Group’s products are less favourable than forecasted or if unforeseen technological changes negatively impact the utility
of component inventory, the Group may be required to record write-downs which would negatively affect gross margins in
the period when the write-downs are recorded and its operating results and nancial position could be adversely affected.
The carrying amount of the Group’s inventories at 30 June 2010 was US$46,120,000 (2009: US$37,600,000).
 (e) Impairmentofnancialassets,available-for-sale
The Group’s investments are inherently risky because the markets for the technologies or products that the companies have under
development are typically in the early stages and may never develop. In the event that the carrying value of an investment exceeds
its fair value and the decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost