Vtech 2003 Annual Report Download - page 37

Annual Report 2003 35
Principal Accounting Policies
H INTANGIBLE ASSETS Intangible assets that are acquired by the
Group are carried at cost less any accumulated amortization and
any impairment losses (refer to note L). Amortization commences
from the date when the developed product is available for use.
I TANGIBLE ASSETS AND DEPRECIATION Land and buildings except
for investment properties (refer to 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 charged 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 and impairment losses (refer to note L).
Gains or losses arising from the disposals of tangible assets are
determined as the difference between the estimated net disposal
proceeds and the carrying amount of the asset and are
recognized in the income statement on the date of disposal.
Depreciation is calculated 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 10 to 30 years or lease term, if shorter
leasehold buildings and
leasehold improvements
Machinery and equipment 3 to 5 years
Motor vehicles, furniture and fixtures 3 to 7 years
Moulds 1 year
J INVESTMENT PROPERTIES Investment property is stated at fair
value determined annually by professional valuers. The valuations
are on an open market value basis, by reference to the current
prices in an active market for similar properties in the same
location and condition. Any gain or loss arising from a change
in fair value is recognized in the income statement.
K LEASES Leases of property, plant and equipment in terms
of which that the Group assumes substantially all the risks and
rewards of ownership are classified as finance leases. Property,
plant and equipment acquired by way of finance lease is stated
at an amount equal to the lower of its fair value and the present
value of the minimum lease payments at inception of the lease
less accumulated depreciation and impairment losses. Finance
charges are charged to the income statement in proportion of
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.
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.
L IMPAIRMENT OF ASSETS The carrying amounts of the Group’s
assets including property, plant and equipment and other non-
current assets, including goodwill and other intangible assets, are
reviewed at each balance sheet date to determine whether there is
any indication of impairment. If any such indication exists, the asset’s
recoverable amount is estimated. An impairment loss is recognized
whenever the carrying amount of an asset exceeds its recoverable
amount. Impairment losses are recognized in the income statement.
The recoverable amount is the greater of their net selling price
and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax
discounted rate that reflects current market assessments of the
time value of money and the risks specific to the asset.
An impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or
amortization, if no impairment loss had been recognized.
M OTHER INVESTMENTS Other investments held by the Group are
stated at fair value, with any resultant gain or loss being
recognized in the income statement. On disposal of an investment,
the difference between the net disposal proceeds and the carrying
amount is recognized to the income statement as they arise.
N STOCKS AND ASSETS HELD FOR SALE (i) Stocks are stated at the
lower of cost and net realizable value. Cost is calculated on the
weighted average or the first-in-first-out basis, and comprises
materials, direct labour and an appropriate share of production
overheads. Net realizable value is the estimated selling price in
the ordinary course of business, less estimates of costs of
completion and selling expenses.
(ii) Assets held for sale are stated at anticipated realizable value.
O TRADE DEBTORS Trade debtors are carried at anticipated
realizable value. An allowance is made for doubtful receivables
based upon the evaluation of the recoverability of these
outstanding amounts at the balance sheet date. Bad debts are
written off during the year in which they are identified.