Creative 2014 Annual Report Download - page 32

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CREATIVE TECHNOLOGY LTD AND ITS SUBSIDIARIES
When treasury shares are subsequently cancelled, the cost of treasury shares are deducted against the share capital account
if the shares are purchased out of capital of the Company, or against the retained earnings of the Company if the shares are
purchased out of earnings of the Company.
When treasury shares are subsequently sold or reissued pursuant to the employee share options and performance share plan,
the cost of treasury shares is reversed from the treasury share account and the realised gain or loss on sale or reissue, net
of any directly attributable incremental transaction costs and related income tax, is recognised as a change in equity of the
Company.
2.21 Dividends to Company’s shareholders
Dividends to the Company’s shareholders are recognised when the dividends are approved for payment.
3. CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGEMENTS
Estimates, assumptions and judgements are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
(a) Revenue recognition
Allowances are provided for estimated returns and discounts. Management analyses historical returns, current economic trends and
changes in customer demand and acceptance of its products when evaluating the adequacy of the sales returns allowance. Such
allowances are adjusted periodically to reect actual and anticipated experience. When recognising revenue, the Group records estimated
reductions to revenue for customer and distributor programs and incentive offerings, including price protection, promotions, other
volume-based incentives and rebates. Signicant management judgement and estimates must be used in connection with establishing
these allowances in any accounting period. The Group may take action when necessary in response to market conditions to increase
customer incentive offerings, possibly resulting in an incremental reduction of revenue at the time the incentive is offered. The
Group’s net revenue for the nancial year ended 30 June 2014 was US$116,332,000 (2013: US$165,342,000).
(b) Impairment of loans and receivables
The Group assesses at each balance sheet date whether there is any objective evidence that a nancial asset is impaired.
To determine whether there is objective evidence of impairment, the Group considers factors such as the probability of
insolvency or signicant nancial difculties of the debtor and default or signicant delay in payments.
Where there is objective evidence of impairment, the amount and timing of future cash ows are estimated based on historical
loss experience for assets with similar credit risk characteristics.
(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 life cycle 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 2014 was US$28,922,000 (2013: US$25,353,000).
NOTES TO THE FINANCIAL STATEMENTS
For the nancial year ended 30 June 2014
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
2.20 Share capital and treasury shares (cont’d)