Vtech 2015 Annual Report Download - page 52

VTech Holdings Limited Annual Report 2015
Notes to the Financial Statements
50
Principal Accounting Policies (Continued)
H Tangible Assets and Depreciation
Tangible assets are stated at cost less accumulated depreciation
and impairment losses (see note (K)).
Depreciation is calculated to write off the cost or revalued amount
of assets on a straight-line basis over their estimated useful lives
which are as follows:
Freehold land is not depreciated.
Leasehold land Over the unexpired
term of lease
Freehold buildings, medium-term and
short-term leasehold buildings and
leasehold improvements
10 to 50 years or lease
term, if shorter
Moulds 1 year
Machinery and equipment 3 to 5 years
Computers, motor vehicles,
furniture and fixtures
3 to 7 years
Where parts of a tangible asset have different useful lives, the cost
of the item is allocated on a reasonable basis between the parts
and each part is depreciated separately. Both the useful life of an
asset and its residual value, if any, are reviewed annually.
Gains or losses arising from the retirement or disposal of tangible
assets are determined as the difference between the estimated
net disposal proceeds and the carrying amount of the assets
and are recognised in profit or loss on the date of retirement or
disposal. The Group has changed its accounting policy for own use
properties from “fair value model” to “cost model” with effect from
the accounting period from 1 April 2014. Details of the change in
accounting policy are set out in note (B).
I Construction in Progress
Construction in progress represents land and buildings under
development and is stated at cost less impairment losses (see
note (K)). Cost comprises the construction costs of buildings and
costs paid to acquire land use rights.
Building construction costs are transferred to leasehold buildings
when the assets are completed and put into operational use
and depreciation will be provided at the appropriate rates in
accordance with the depreciation policies (see note (H)).
No depreciation or amortisation is provided in respect of
construction in progress.
J Leases
Leases of tangible assets in terms of which that the Group assumes
substantially all the risks and rewards of ownership are classified
as finance leases. Tangible assets acquired by way of finance lease
is stated at an amount equal to the lower of its fair value and the
present value of the minimum lease payments at inception of
the lease less accumulated depreciation and impairment losses
(see note (K)). Finance charges are recognised in profit or loss in
proportion of the capital balances outstanding.
Leases of assets under which substantially all the benefits and risks
of ownership are effectively retained by the lessor are classified as
operating leases. Payments made under operating leases (net of
any incentives received from the lessor) are recognised in profit or
loss on a straight-line basis over the period of the lease.
Leasehold land payments are up-front payments to acquire long-
term leasehold interests in land. These payments are stated at
cost and are amortised on a straight-line basis over the respective
period of the leases.
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.
K Impairment of Assets
(i) Impairment of debtors and other nancial assets
Impairment losses for doubtful debts are recognised when
there is objective evidence of impairment and are measured
as the difference between the carrying amount of the
financial asset and the estimated future cash flows, discounted
at the asset’s original effective interest rate where the effect
of discounting is material. Objective evidence of impairment
includes observable data that comes to the attention of
the Group about events that have an impact on the asset’s
estimated future cash flows such as significant financial
difficulty of the debtor.
Impairment losses for debtors whose recovery is considered
doubtful but not remote are recorded using an allowance
account. When the Group is satisfied that recovery is remote,
the amount considered irrecoverable is written off against
trade debtors directly and any amounts held in the allowance
account relating to that debt are reversed. Subsequent
recoveries of amounts previously charged to the allowance
account are reversed against the allowance account. Other
changes in the allowance account and subsequent recoveries
of amounts previously written off directly are recognised in
profit or loss.
(ii) Impairment of other assets
The carrying amounts of the Group’s assets including tangible
assets, construction in progress, interest in subsidiaries 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 of disposal 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. Where an asset does not generate cash inflows
largely independent of those from other assets, the
recoverable amount is determined for the smallest group
of assets that generates cash inflows independently
(i.e. a cash-generating unit).
– 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.