LensCrafters 2012 Annual Report Download - page 201

| 115 >CONSOLIDATED FINANCIAL STATEMENTS - NOTES
Franchise revenues based on sales by franchisees (such as royalties) are accrued and
recognized as earned. Initial franchise fees are recorded as revenue when all material
services or conditions relating to the sale of the franchise have been substantially performed
or satisfied by the Group and when the related store begins operations. Allowances are
established for amounts due under these relationships when they are determined to be
uncollectible.
The Group licenses to third parties the rights to certain intellectual property and other
proprietary information and recognizes royalty revenues when earned.
The Wholesale and Retail Divisions may offer certain promotions during the year. Free
frames given to customers as part of a promotional offer are recorded in cost of sales at the
time they are delivered to the customer. Discounts and coupons tendered by customers
are recorded as a reduction of revenue at the date of sale.
Use of accounting estimates
The preparation of financial statements in conformity with IFRS requires the use of certain
critical accounting estimates and assumptions which influence the value of assets and
liabilities as well as revenues and costs reported in the consolidated statement of financial
position and in the consolidated statement of income, respectively or the disclosures
included in the notes to the consolidated financial statements in relation to potential
assets and liabilities existing as of the date the consolidated financial statements were
authorized for issue.
Estimates are based on historical experience and other factors. The resulting accounting
estimates could differ from the related actual results. Estimates are periodically reviewed
and the effects of each change are reflected in the consolidated statement of income in
the period in which the change occurs.
The current economic and financial crisis has resulted in the need to make assumptions on
future trends that are characterized by a significant degree of uncertainty and, therefore,
the actual results in future years may significantly differ from the estimate.
The most significant accounting principles which require a higher degree of judgment
from management are illustrated below:
(a) valuation of receivables. Receivables from customers are adjusted by the related
allowance for doubtful accounts in order to take into account their recoverable
amount. The determination of the amount of write-downs requires judgment from
management based on available documentation and information, as well as the
solvency of the customer, and based on past experience and historical trends;
(b) valuation of inventories. Inventories which are obsolete and slow moving are periodically
evaluated and written-down in the case that their recoverable amount is lower than
their carrying amount. Write-downs are calculated on the basis of management
assumptions and estimates which are derived from experience and historical results;
(c) valuation of deferred tax assets. The valuation of deferred tax assets is based on
forecasted results which depend upon factors that could vary over time and could
have significant effects on the valuation of deferred tax assets;