Creative 2013 Annual Report Download - page 33

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CREATIVE TECHNOLOGY LTD AND ITS SUBSIDIARIES
(c) Valuation of inventories
The Group states inventories at the lower of cost and net realisable value. The Group records a write-down for inventories
of components and products which have become obsolete or are in excess of anticipated demand or net realisable value.
Management performs a detailed assessment of inventory at each balance sheet date to establish provisions for excess and
obsolete inventories. Management’s 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. The markets for PC peripherals and personal digital entertainment products are subject to a rapid and
unpredictable pace of product and component obsolescence and demand changes. If future demand or market conditions for
the Group’s products are less favourable than forecasted or if unforeseen technological changes negatively impact the utility
of component inventory, the Group may be required to record write-downs which would negatively affect gross margins in
the period when the write-downs are recorded and its operating results and nancial position could be adversely affected.
The carrying amount of the Group’s inventories at 30 June 2013 was US$25,353,000 (2012: US$27,822,000).
(d) Assessment of the probability of the outcome of current litigation
The Group is subject to certain legal proceedings, lawsuits and other claims. Assessments are made by management on a case-by-
case basis to make a determination as to the impact, if any, on the business, liquidity, results of operations, nancial condition or
cashows. Management believes that the ultimate outcome of the legal proceedings, lawsuits and other claims, individually and
in aggregate will not have a material adverse impact to the Group.
(e) Income taxes
In preparing its nancial statements, the Group estimates its income taxes for each of the jurisdictions in which it operates.
This involves estimating the actual current tax exposure, assessing temporary differences resulting from differing treatment
of items, such as reserves and provisions for tax and accounting purposes and accounting for uncertainty in income taxes.
These differences result in current and deferred income tax liabilities, which are included within the Group’s consolidated
balance sheet. The Group recognises deferred income tax assets on carried forward tax losses to the extent there are sufcient
estimated future taxable prots and/or taxable temporary differences against which the tax losses can be utilised. The Group’s
income tax liabilities were US$706,000 (2012: US$742,000) and deferred income tax liabilities were US$15,202,000 (2012:
US$17,902,000) at 30 June 2013.
4. EXPENSES BY NATURE
Included in the cost of goods sold, selling, general and administrative and research and development expenses are the
following:
Group
2013 2012
US$’000 US$’000
Amorsaon of intangible assets (Note 19) – 269
Depreciaon of property and equipment (Note 18)  3,624
Employee compensaon (Note 5)  58,920
Adversing expenses  5,117
Rental expenses on operang leases  16,556
Research and development related expenses 3,461 6,478
Travel, entertainment and transportaon expenses  2,000
Inventory write-o  9,949
Freight charges 7,404 9,709
Legal fees  1,296
Insurance 631 569
Warranty provision (write back) (Note 22(a))  (370)