Vtech 2015 Annual Report Download - page 51

VTech Holdings Limited Annual Report 2015 49
Principal Accounting Policies (Continued)
C Basis of Preparation of the Financial Statements
These financial statements are prepared on the historical cost basis
as modified by the revaluation of derivative financial instruments
stated at their fair value as explained in the accounting policies set
out below.
The preparation of the financial statements in conformity with
IFRSs requires management to make judgements, estimates and
assumptions that affect the application of policies and reported
amounts of assets, liabilities, income and expenses. The estimates
and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the
judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future periods
if the revision affects both current and future periods.
Judgements made by management in the application of IFRSs
that have significant effect on the financial statements and major
sources of estimation uncertainty are discussed in note 24.
D Basis of Consolidation
The consolidated financial statements include the financial
statements of the Company and its subsidiaries and structured
entities. All significant inter-company balances and transactions
and any unrealised gains arising from inter-company transactions
are eliminated on consolidation.
Subsidiaries are entities (including structured entities) controlled
by the Group. The Group controls an entity when it is exposed,
or has rights, to variable returns from its involvement with the
entity and has the ability to affect those returns through its power
over the entity. When assessing whether the Group has power,
only substantive rights (held by the Group and other parties)
are considered.
An investment in a subsidiary and a structured entity consolidated
into the consolidated financial statements from the date that
control commences until the date that control ceases. Intra-group
balances, and transactions and cash flows and any unrealised
profits arising from intra-group transactions are eliminated in full in
preparing the consolidated financial statements. Unrealised losses
resulting from intra-group transactions are eliminated in the same
way as unrealised gains but only to the extent that there is no
evidence of impairment. The assets and liabilities of the structured
entity, VTech Share Purchase Scheme Trust, are included in the
Group’s consolidated 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.
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.
When the Group loses control of a subsidiary, it is accounted
for as a disposal of the entire interest in that subsidiary, with a
resulting gain or loss being recognised in profit or loss. Any interest
retained in that former subsidiary at the date when control is
lost is recognised at fair value and this amount is regarded as
the fair value on initial recognition of a financial asset or, when
appropriate, the cost on initial recognition of an investment in an
associate or a joint venture.
Investments in subsidiaries in the Company’s balance sheet are
stated at cost less impairment losses (see note (K)). The financial
results of subsidiaries are accounted for by the Company on the
basis of dividends received and receivable.
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,
returns, rebates and discounts.
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.