Creative 2002 Annual Report Download - page 27

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25
Cash equivalents
Cash equivalents consist of highly liquid investment instruments with original maturities of three months or less. All
deposits are in short term deposit and money market accounts with various banks. This diversification of risk is consistent
with Creative’s policy to maintain liquidity and ensure the safety of principal. Included in cash equivalents as of June 30,
2002 and 2001 are fixed rate deposits of $128.0 million and $132.7 million respectively. A total of $4.5 million in the fixed
rate deposits was held as collateral for one of the subsidiary’s bank overdraft and short term loan facilities (see Note 10).
Marketable Securities
Creative determines the appropriate classification of marketable securities at the time of acquisition and evaluates such
designation at each balance sheet date. For all periods presented, Creative has classified marketable securities as trading
securities, and accordingly such securities are stated at their market values based on the last transacted prices at each
balance sheet date. The resulting net unrealized gains or losses on marketable securities are included in earnings in the
period they are incurred.
Fair value of financial instruments
For certain of Creative’s financial instruments, including cash equivalents, accounts receivable, accounts payable and
accrued expenses, the carrying amounts approximate fair value due to their short maturities. The amounts shown for long
term obligations also approximate fair value because current interest rates charged to Creative for debts of similar maturities
are substantially the same.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined using standard cost, appropriately adjusted at balance
sheet date to approximate actual cost on a weighted average basis. In the case of finished products and work-in-progress,
cost includes materials, direct labor and an appropriate proportion of production overheads.
Management performs a detailed assessment of inventory at each balance sheet date to establish provisions for excess and
obsolete inventories. Evaluation includes a review of, among other factors, historical sales, current economic trends,
forecasted sales, demand requirements, product lifecycle and product development plans, quality issues, and current
inventory levels.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the
remaining facility lease term or the estimated useful lives of the improvements. No depreciation is provided on freehold
land and construction in progress.