Vtech 2012 Annual Report Download - page 46

44 VTech Holdings Ltd Annual Report 2012
Notes to the Financial Statements
Principal Accounting Policies (Continued)
K Impairment of Assets (Continued)
(ii) Impairment of other assets
The carrying amounts of the Group’s assets including property,
plant and equipment, construction in progress, interest in
subsidiaries, interest in associates and other investments, 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.
– Calculation of 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 discount 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 profit
or loss 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. A reversal of an impairment loss
is limited to the asset’s carrying amount that would have
been determined had no impairment loss been
recognised in prior years. Reversals of impairment losses
are credited to profit or loss in the year in which the
reversals are recognised.
– Interim financial reporting and impairment
Under the Listing rules, 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.