Vtech 2011 Annual Report Download - page 41

VTech Holdings Ltd Annual Report 2011 39
Principal Accounting Policies (Continued)
K Impairment of Assets (Continued)
(ii) Impairment of other assets (Continued)
– Recoverable amount
The recoverable amount is the greater of the
asset’s fair value less costs to sell 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.
– Recognition of impairment losses
An impairment loss is recognised as an expense in the
consolidated income statement whenever the carrying
amount exceeds the recoverable amount.
– Reversal of impairment losses
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.
– Interim financial reporting and impairment
Under the Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited, the Group
is required to prepare an interim financial report in
compliance with IAS 34, Interim financial reporting, in
respect of the first six months of the financial year. At the
end of the interim period, the Group applies the same
impairment testing, recognition, and reversal criteria as
it would at the end of the financial year.
L Other Investments
Other investments are initially stated at fair value, which is their
transaction price unless fair value can be more reliably estimated
using valuation techniques whose variables include only data
from observable markets. Cost includes attributable transaction
costs. Subsequently, other investments that do not have a quoted
market price in an active market and whose fair value cannot be
reliably measured are recognised in the balance sheet at cost less
impairment losses (see note (K)).
M Stocks
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 incurred in bringing the inventories to
their present location and condition. Net realisable value is the
estimated selling price in the ordinary course of business, less
estimates of costs of completion and selling expenses.
When stocks are sold, the carrying amount of those stocks is
recognised as an expense in the period in which the related
revenue is recognised. The amount of any write-down of stocks
to net realisable value and all losses of stocks are recognised as an
expense in the period the write-down or loss occurs. The amount
of any reversal of any write-down of stocks is recognised as a
reduction in the amount of stocks as an expense in the period in
which the reversal occurs.
N Trade and Other Debtors
Trade and other debtors are initially recognised at fair value and
thereafter stated at amortised cost less allowance for impairment
of doubtful debts, except where the debtors are interest-free
loans made to related parties without any fixed repayment terms
or the effect of discounting would be immaterial. In such cases,
the receivables are stated at cost less allowance for impairment of
doubtful debts (see note (K)).
O Cash and Cash Equivalents
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 statement of cash flows.
P Trade and Other Creditors
Trade and other creditors are initially recognised at fair value
and thereafter stated at amortised cost unless the effect of
discounting would be immaterial, in which case they are stated at
cost.
Q Provisions and Contingent Liabilities
(i) Financial guarantees issued
Financial guarantees are contracts that require the issuer
(i.e. the guarantor) to make specified payments to reimburse
the beneficiary of the guarantee (the “holder”) for a loss
the holder incurs because a specified debtor fails to make
payment when due in accordance with the terms of a debt
instrument.
Where the Group issues a financial guarantee, the fair value
of the guarantee (being the transaction price, unless the
fair value can otherwise be reliably estimated) is initially
recognised as deferred income within trade and other
creditors. Where consideration is received or receivable
for the issuance of the guarantee, the consideration
is recognised in accordance with the Group’s policies
applicable to that category of asset. Where no such
consideration is received or receivable, an immediate
expense is recognised in profit or loss on initial recognition of
any deferred income.