Creative 2008 Annual Report Download - page 24

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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 and accounts payable, 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 the
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. The 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.
Creative reviews property and equipment for impairment in accordance with SFAS No. 144, “Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed”. Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of
these assets is measured by comparison of its carrying amount to future undiscounted cash flows the assets are expected to
generate. If the property and equipment are considered to be impaired, the impairment to be recognized equals the amount
by which the carrying value of the assets exceeds its fair market value. For the three fiscal years ended June 30, 2008,
2007 and 2006, Creative had no impairment of its long-lived assets.
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 and 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 investments total 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. In the event where a subsidiary or associated company
issues shares to a third party at a price different from Creative’s carrying value of such shares, the difference is taken to
the income statement.
Non-quoted investments of less than 20% in an entity are carried at cost, less provisions for permanent impairment where
necessary.