Vtech 2002 Annual Report Download - page 39

Annual Report 2002 37
Principal Accounting Policies
E FOREIGN CURRENCIES
Transactions denominated in foreign currencies are translated at exchange rates ruling at the transaction dates. Monetary assets and
liabilities denominated in foreign currencies are translated into United States Dollars at the rates of exchange ruling at the balance sheet
date. Income statements of foreign entities are translated into the Group’s reporting currency at average exchange rates for the year and
balance sheets are translated at the exchange rates ruling at the balance sheet date.
Net exchange differences arising from the translation of the financial statements of subsidiaries and associates expressed in foreign
currencies are taken directly to exchange reserve. All other exchange differences are dealt with in the consolidated income statement.
F REVENUE RECOGNITION
Revenue from the sale of goods is recognized upon delivery of products and customer acceptance. Revenue is stated net of sales taxes and
discounts, after eliminating sales within the Group.
Revenue from the delivery of services is recognized when the services are rendered.
Interest income is recognized on an effective yield basis. Dividend income is recognized when the Group’s right to receive payment is
established.
G RESEARCH AND DEVELOPMENT
Research and development costs are written off as incurred.
H INTANGIBLE ASSETS
Intangible assets represent purchased research and development on acquisition of businesses and are initially recognized at cost, being the
fair value at date of acquisition. After initial recognition, intangible assets are carried at cost less any accumulated amortization and any
accumulated impairment losses. Amortization commences when the developed product is ready for its intended use.
I TANGIBLE ASSETS AND DEPRECIATION
Land and buildings (except for investment properties referred to in note (J) below) are stated at cost or valuation performed by professional
valuers every three years less amounts provided for depreciation except in the case of freehold land which is not depreciated. In the
intervening years the directors review the carrying value and adjustment is made where there has been a material change. The valuations
are on an open market value basis and are incorporated in the annual financial statements. Increases in valuation are credited to the
revaluation reserve; decreases are first set off against increases on earlier valuations in respect of the same assets and thereafter are debited
to the consolidated income statement. Upon the disposal of a revalued property, the relevant portion of the realized revaluation reserve in
respect of previous revaluations is transferred from revaluation reserve to revenue reserve. All other tangible assets are stated at cost less
accumulated depreciation.
Where the carrying amount of a tangible asset is greater than its estimated recoverable amount, it is written down immediately to its
recoverable amount. Gains and losses on disposal of tangible assets are determined by reference to their carrying amounts and are included
in operating profit.
Depreciation is calculated on a monthly basis to write off the cost or valuation of assets on a straight-line basis over their estimated useful
lives which are as follows:
Long-term leasehold buildings Lease term
Freehold buildings, short-term leasehold buildings and 10 to 30 years or lease term, if shorter
leasehold improvements
Machinery and equipment 3 to 5 years
Motor vehicles, furniture and fixtures 3 to 7 years
Moulds 1 year
In prior years, the Group accounted for leasehold interests in land at valuation less accumulated depreciation. Starting from the current year,
with the adoption of IAS 40, “Investment Property”, which clarified that leasehold interests in land should not be stated at valuation and
should be treated as operating leases and be stated at amortized cost. Accordingly, the beginning balance of leasehold land had been
restated and reclassified as disclosed in notes 9 and 10 to the financial statements. The effect of this change has been to increase
shareholders’ funds at 1st April 2000 and 1st April 2001 by US$0.2 million and US$0.1 million respectively.