Vtech 2005 Annual Report Download - page 38

Notes to the Financial Statements
36 VTech Holdings Ltd Annual Report 2005
Principal Accounting Policies (continued)
E Research and Development Research and development
costs comprise all costs that are directly attributable to research
and development activities or that can be allocated on a
reasonable basis to such activities.
Expenditure on research activities is recognised as an expense
in the period in which it is incurred.
Expenditure on development activities is capitalised only if the
product or process is clearly defined, technically and commercially
feasible, the attributable expenditure is separately identifiable and
the Group has sufficient resources and the intention to complete
development. The expenditure capitalised includes the cost of
materials, direct labour and an appropriate proportion of
overheads which are directly attributable to development
activities. Capitalised development costs are stated at cost less
accumulated amortisation and impairment losses (see note (I)).
Development expenditure that does not meet the above criteria
is recognised as an expense in the period in which it is incurred.
Amortisation is calculated to write off capitalised development
costs on a straight-line basis over their estimated useful lives,
commencing from the date when the products are put into
commercial production.
F Intangible Assets Intangible assets that are acquired by
the Group are carried at cost less any accumulated amortisation
and any impairment losses (see note (I)). Amortisation
commences from the date when the developed product is
available for use.
G Tangible Assets and Depreciation Land and
buildings are stated at cost or valuation performed by
professional valuers every three years less amounts provided for
depreciation except in the case of freehold land which is not
depreciated. In the intervening years the directors review the
carrying value and adjustment is made where there has been a
material change. The valuations are on an open market value
basis and are incorporated in the financial statements. Increases
in valuation are credited to the revaluation reserve; decreases
are first set off against increases on earlier valuations in respect
of the same assets and thereafter are charged to the
consolidated income statement. Upon the disposal of a revalued
property, the relevant portion of the realised revaluation reserve
in respect of previous revaluations is transferred from
revaluation reserve to revenue reserve.
All other tangible assets are stated at cost less accumulated
depreciation and impairment losses (see note (I)).
Gains or losses arising from the retirement or disposal of
tangible assets are determined as the difference between the
estimated net disposal proceeds and the carrying amount of the
assets and are recognised in the income statement on the date
of retirement or disposal.
Depreciation is calculated to write off the cost or revalued
amount of assets on a straight-line basis over their estimated
useful lives which are as follows:
Long-term leasehold buildings Lease term
Freehold buildings, short-term 10 to 30 years or lease term, if shorter
leasehold buildings and
leasehold improvements
Machinery and equipment 3 to 5 years
Computers, motor vehicles, furniture 3 to 7 years
and fixtures
Moulds 1 year
H Leases Leases of property, plant and equipment in terms
of which that the Group assumes substantially all the risks and
rewards of ownership are classified as finance leases. Property,
plant and equipment acquired by way of finance lease is stated
at an amount equal to the lower of its fair value and the present
value of the minimum lease payments at inception of the lease
less accumulated depreciation and impairment losses (see note
(I)). Finance charges are charged to the income statement in
proportion of the capital balances outstanding.
Leases of assets under which all the benefits and risks of
ownership are effectively retained by the lessor are classified as
operating leases. Payments made under operating leases (net of
any incentives received from the lessor) are charged to the
income statement on a straight-line basis over the period of
the lease.
Leasehold land payments are up-front payments to acquire
long-term leasehold interests in land. These payments are stated
at cost and are amortised on a straight-line basis over the
respective period of the leases.