Vtech 2005 Annual Report Download - page 39

Notes to the Financial Statements
37
VTech Holdings Ltd Annual Report 2005
Principal Accounting Policies (continued)
H Leases (continued) When an operating lease is terminated
before the lease period has expired, any payment required to be
made to the lessor by way of penalty is recognised as an
expense in the period in which the termination takes place.
I Impairment of Assets The carrying amounts of the
Group’s assets including property, plant and equipment and
other non-current assets are reviewed at each balance sheet
date to determine whether there is any indication of
impairment. If any such indication exists, the asset’s recoverable
amount is estimated. An impairment loss is recognised
whenever the carrying amount of an asset exceeds its
recoverable amount. Impairment losses are recognised in the
income statement.
The recoverable amount is the greater of the asset’s net selling
price and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discounted rate that reflects current market assessments
of the time value of money and the risks specific to the asset.
An impairment loss is reversed if there has been a favourable
change in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent that
the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation
or amortisation, if no impairment loss had been recognised.
J Construction in Progress Construction in progress
represents machinery and equipment under construction and
pending installation and is stated at cost less impairment losses
(see note (I)). Cost comprises the purchase costs of equipment
and the related installation costs.
Construction in progress is transferred to machinery and
equipment when the asset is substantially ready for its intended
use and depreciation will be provided at the appropriate rates in
accordance with the depreciation policies specified in note (G).
No depreciation is provided in respect of construction
in progress.
K Other Investments Other investments held by the
Group are stated at fair value, with any resultant gain or loss
being recognised in the income statement. On disposal of an
investment, the difference between the net disposal proceeds
and the carrying amount is recognised to the income statement
as they arise.
L Stocks and Assets Held for Sale (i) Stocks are stated at
the lower of cost and net realisable value. Cost is calculated on
the weighted average or the first-in-first-out basis, and
comprises materials, direct labour and an appropriate share of
production overheads. Net realisable value is the estimated
selling price in the ordinary course of business, less estimates of
costs of completion and selling expenses.
(ii) Assets held for sale are stated at anticipated realisable
value.
M Trade Debtors Trade debtors are carried at anticipated
realisable value. An allowance is made for doubtful debts based
upon the evaluation of the recoverability of these outstanding
amounts at the balance sheet date. Bad debts are written off in
the income statement during the year in which they are
identified.
N Cash and Cash Equivalents For the purpose of the
cash flow statement, cash and cash equivalents comprise cash
on hand, demand deposits with banks and other financial
institutions, short-term highly liquid investments that are readily
convertible into known amounts of cash and which are subject
to an insignificant risk of changes in value and which have a
maturity of three months or less at acquisition. Bank overdrafts
that are repayable on demand and form an integral part of the
Group’s cash management are also included as a component of
cash and cash equivalents.
For the purpose of the balance sheet, cash and cash equivalents
are cash on hand, deposits with banks and other financial
institutions, which are not restricted in its use. Bank overdrafts
are included in borrowings in current liabilities.
O Trade and Other Creditors Trade and other creditors
are stated at their cost.