Vtech 2011 Annual Report Download - page 39

VTech Holdings Ltd Annual Report 2011 37
Principal Accounting Policies (Continued)
D Basis of Consolidation (Continued)
Investments in subsidiaries and a controlled special purpose
entity are consolidated into the consolidated financial statements
from the date that control commences until the date that control
ceases. The assets and liabilities of the controlled special purpose
entity, VTech Share Purchase Scheme Trust, are included in the
Group’s balance sheet and the shares held by the VTech Share
Purchase Scheme Trust are presented as a deduction in equity as
Shares held for Share Purchase Scheme.
Non-controlling interests (previously known as “minority
interests”) represent the equity in a subsidiary not attributable
directly or indirectly to the Company, and in respect of which the
Group has not agreed any additional terms with the holders of
those interests which would result in the Group as a whole having
a contractual obligation in respect of those interests that meets
the definition of a financial liability.
Changes in the Group’s interests in a subsidiary that do not result
in a loss of control are accounted for as equity transactions,
whereby adjustments are made to the amounts of controlling
and non-controlling interests within consolidated equity to
reflect the change in relative interests, but no adjustments are
made to goodwill and no gain or loss is recognised.
Investments in subsidiaries are stated at cost less impairment
losses (see note (K)) in the Company’s balance sheet.
Associates are those entities, not being subsidiaries, in which
the Group exercises significant influence, but not control, over
the financial and operating policies. The consolidated financial
statements include the Group’s share of the total recognised
gains and losses of associates under the equity method, from
the date that significant influence commences until the date
that significant influence ceases. When the Group’s share of
losses exceeds the carrying amount of the associate, the carrying
amount is reduced to nil and recognition of further losses is
discontinued except to the extent that the Group has incurred
obligations in respect of that associate.
Investments in associates are stated at cost less impairment losses
(see note (K)) in the Company’s balance sheet.
E Revenue Recognition
Revenue is measured at the fair value of the consideration
received or receivable. Provided it is probable that the economic
benefits will flow to the Group and the revenue and costs, if
applicable, can be measured reliably, revenue is recognised in
profit or loss as follows:
(i) Revenue from the sale of goods is recognised when the
significant risks and rewards of ownership have been
transferred to the buyer. Revenue is stated net of sales taxes
and discounts, after eliminating sales within the Group.
(ii) Revenue from the provision of services is recognised when
the services are rendered.
(iii) Interest income is recognised as it accrues using the effective
interest method.
(iv) Dividend income is recognised when the Group’s right to
receive payment is established.
F 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 (K)). 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.
G Translation of Foreign Currencies
Foreign currency transactions during the year are translated into
United States dollars at the foreign exchange rates ruling at the
transaction dates. Monetary assets and liabilities denominated
in foreign currencies are translated into United States dollars
at the foreign exchange rates ruling at the balance sheet date.
Exchange gains and losses are recognised in profit or loss.
Non-monetary assets and liabilities that are measured in terms
of historical cost in a foreign currency are translated using the
foreign exchange rates ruling at the transactions dates.
Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated using the foreign
exchange rates ruling at the dates the fair value was determined.
The results of foreign operations are translated into United
States dollars at the exchange rates approximating the foreign
exchange rates ruling at the dates of the transactions. Balance
sheet items are translated into United States dollars at the closing
foreign exchange rates at the balance sheet date.
On disposal of a foreign operation, the cumulative amount of
the exchange differences relating to that foreign operation is
reclassified from equity to profit or loss when the profit or loss on
disposal is recognised.
H 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.
Revaluations are performed with sufficient regularity to ensure
that the carrying amount of these assets does not differ materially
from that which would be determined using fair values at the
balance sheet date.