Creative 2001 Annual Report Download - page 20

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
Investments
Creative holds equity investments in various companies pursuant to which it has acquired anywhere from less than
1% to 100% of the issuer’s outstanding capital stock. Investments in which Creative acquires more than 50% of
the outstanding capital stock of an entity, or which are under the effective control of Creative, are treated as investments
in subsidiaries, and the balance sheets and results of operations of these subsidiaries are fully consolidated after
making allowance for any minority interests. Companies in which Creative’s investment totals between 20% and
50% of such company’s capital stock are treated as associated companies and recorded on an equity basis, whereby
Creative adjusts its cost of investments to recognize its share of all post acquisition results of operations. Non quoted
investments of less than 20% in an entity are carried at cost. Management regularly reviews the assumptions
underlying related sales, net income and cash flow forecasts and other factors used in assessing the carrying values
of such investments, and records write-downs to such investments when necessary.
In accordance with Statement of Financial Accounting Standards No. 115 (SFAS 115), “Accounting for Certain
Investments in Debt and Equity Securities”, quoted investments of less than 20% in an entity are classified as
available-for-sale. Such investments are reported at fair value with the unrealized gains and losses included as a
separate component of shareholders’ equity. Unrealized losses are charged against income when a decline in fair
value is determined to be other than temporary. Realized gains and losses upon the sale or disposition of such
investments are based on the average cost of the specific investments sold.
A summary of investments is as follows (in US$’000):
As of June 30
2001 2000
Non quoted investments $ 40,761 $ 106,519
Quoted investments 77,569 289,369
Total investments $ 118,330 $395,888
Intangible assets
Intangible assets are stated at cost and relate principally to the acquisition of new subsidiaries accounted for under
the purchase method. Under this method, the purchase price has been allocated to the assets acquired, liabilities
assumed and in-process technology based on their estimated fair market values at the dates of acquisition. Amortization
is computed using the straight-line method over the estimated useful lives of the assets, ranging from one to seven
years. Creative regularly reviews the net realizable value of its intangible assets and various assumptions underlying
the expected sales revenue and net cash flow to be derived from such intangibles. Where projected cash flow is not
sufficient to recover the net value of the intangible assets, such excess is written off. At each of June 30, 2001 and
2000, amounts capitalized in connection with these acquisitions was $66.5 million and the related accumulated
amortization totaled $62.6 million and $56.3 million respectively.
Revenue recognition
Creative recognizes revenue from product sales when title transfers to the customer which, depending on the sales
terms, occurs when products are shipped to or are received by the customer. Allowances are established and regularly
reviewed by management to reflect an estimate of future sales returns from customers and expected price adjustments
for sales to distributors.