Vtech 2002 Annual Report Download - page 40

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VTech Holdings Ltd38
Principal Accounting Policies
J INVESTMENT PROPERTIES
Investment properties are interests in land and buildings which are held for their investment potential.
In prior years, investment properties were stated at valuation performed by professional valuers annually. The valuations were on open
market value basis related to individual properties and were incorporated in the annual financial statements. Under IAS 40 “Investment
Property”, which the Group adopted at 1st April 2001, changes in fair values are recorded in the consolidated income statement. These
changes were previously taken directly to investment properties revaluation reserve but are now recognized in the consolidated income
statement. The amounts included in revaluation reserve for investment properties has been reclassified to the opening balance of revenue
reserve, the comparative amounts for the year ended 31st March 2001 have been restated.
In addition, with the adoption of IAS 40 as described in note (I) above, the Group no longer accounted for leasehold interests in land at
valuation. Accordingly, the beginning balance of leasehold interests in land with respect to investment properties had been restated and
reclassified as disclosed in notes 9 and 10 to the financial statements.
These changes have no significant effect on shareholders’ funds at 1st April 2000 and 1st April 2001.
K CONSTRUCTION IN PROGRESS
Consruction in progress represents buildings under construction and is stated as cost. Construction in progress is not depreciated until such
time as the assets are completed and put into operational use.
L LEASES
Leases of property, plant and equipment that substantially transfer to the Group all the benefits and risks of ownership of assets, other than
legal title, are accounted for as finance leases. At the inception of a finance lease, the fair value of the asset is recorded together with the
obligation, excluding the interest element, to pay future rentals. Finance charges are debited to the income statement in proportion to the
capital balances outstanding.
Leases of assets under which all the benefits and risks of ownership are effectively retained by the lessor are classified as operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-
line basis over the period of the lease.
Leasehold land payments are up-front payments to acquire long-term leasehold interests in land. These payments are stated at cost and are
amortized over the period of the lease. In previous years, long-term leasehold interests in land were recognized as tangible fixed assets and
were stated at valuation.
When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of
penalty is recognized as an expense in the period in which the termination takes place.
M IMPAIRMENT OF ASSETS
Property, plant and equipment and other non-current assets, including goodwill and other intangible assets, are reviewed for impairment
losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets whose carrying
values exceed their recoverable amounts are written down to amounts determined using discounted net future cash flows expected to be
generated by the assets.
N OTHER INVESTMENTS
Other investments are held for the long term and stated at cost less provision, if any, for permanent diminution in value. Where there is a
permanent diminution in value of an investment, it is recognized as an expense in the period in which the diminution is identified. On
disposal of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to the income
statement.
O STOCKS
Stocks are stated at the lower of cost and net realizable value. Cost, calculated on the weighted average or the first in first out basis,
comprises materials, direct labour and an appropriate proportion of all production overhead expenditure. Net realizable value is determined
on the basis of anticipated sales proceeds in the ordinary course of business less estimates of costs to completion and selling expenses.