Creative 2003 Annual Report Download - page 25

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
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.
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, less provisions for permanent impairment where
necessary.
In accordance with 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.
The investment portfolio is monitored on a periodic basis for impairment. Creative’s investments in these companies are
inherently risky because the markets for the technologies or products they have under development are typically in the
early stages and may never develop. In the event that the carrying value of an investment exceeds its fair value and the
decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the
investment is established. Fair values for investments in public companies are determined using quoted market prices.
Fair values for investments in privately-held companies are estimated based upon one or more of the following: pricing
models using historical and forecasted financial information and current market rates, liquidation values, the values of
recent rounds of financing, or quoted market prices of comparable public companies.