Vtech 2004 Annual Report Download - page 33

VTech Holdings Ltd Annual Report 2004
31
Principal
Accounting Policies
that significant influence commences until the date that significant
influence ceases. When the Group’s share of losses exceeds the
carrying amount of the associate, the carrying amount is reduced
to nil and recognition of further losses is discontinued except to
the extent that the Group has incurred obligations in respect of
that associate. Investments in associates are stated at cost less
impairment losses (see note K) in the Company’s balance sheet.
C GOODWILL Goodwill arising on acquisition represents the
excess of the cost of an acquisition over the fair value of the
Group’s share of the net identifiable assets of the acquired
subsidiary or associate. Goodwill is stated at cost less accumulated
amortisation and any impairment losses (see note K). Amortisation
of goodwill charged to the income statement is calculated using
the straight-line method over its estimated useful life not
exceeding five years.
The profit or loss on disposal of a subsidiary or an associate is
calculated by reference to the net assets at the date of disposal
including the attributable amount of goodwill which remains
unamortised.
D NEGATIVE GOODWILL Negative goodwill arising on the
acquisition represents the excess of the fair values of the net
identifiable assets and liabilities acquired over the cost of the
acquisition.
To the extent that negative goodwill relates to an expectation of
future losses and expenses that are identified in the plan of
acquisition and can be measured reliably, but which do not
represent identifiable liabilities at the date of acquisition, that
portion of negative goodwill will be recognised as income in the
consolidated income statement when the future losses and
expenses are recognised.
To the extent that negative goodwill does not relate to identifiable
expected future losses and expenses at the date of acquisition,
negative goodwill will be recognised as income in the consolidated
income statement on a systematic basis over the remaining useful
life of the identifiable acquired depreciable/amortisable assets. The
amount of any negative goodwill in excess of the fair values of
acquired identifiable non-monetary assets is recognised
immediately in the consolidated income statement.
The gain or loss on disposal of a subsidiary or an associate includes
the unamortised balance of negative goodwill relating to the
subsidiary or associate disposed of.
E FOREIGN CURRENCIES Transactions denominated in
foreign currencies are translated into United States dollars at the
foreign 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 income statement.
F REVENUE RECOGNITION Revenue from the sale of goods
is recognised in the income statement when the significant risks
and rewards of ownership have been transferred to the buyer.
Revenue is stated net of sales taxes and discounts, after eliminating
sales within the Group.
Revenue from the provision of services is recognised when the
services are rendered.
Interest income is recognised on a time-apportioned basis that
takes into account the effective yield on the asset. Dividend
income is recognised when the Group’s right to receive payment is
established.
G RESEARCH AND DEVELOPMENT Research and
development costs comprise all costs that are directly attributable
to research and development activities or that can be allocated on
a reasonable basis to such activities.
Expenditure on research activities is recognised as an expense in
the period in which it is incurred.
Expenditure on development activities is capitalised only if the
product or process is clearly defined, technically and commercially
feasible, the attributable expenditure is separately identifiable and
the Group has sufficient resources and the intention to complete
development. The expenditure capitalised includes the cost of
materials, direct labour and an appropriate proportion of overheads
which are directly attributable to development activities. Capitalised
development costs are stated at cost less accumulated amortisation
and impairment losses (see note K). Development expenditure that
does not meet the above criteria is recognised as an expense in the
period in which it is incurred.
Amortisation is calculated to write off capitalised development
costs on a straight-line basis over their estimated useful lives,
commencing from the date when the products are put into
commercial production.
H INTANGIBLE ASSETS Intangible assets that are acquired
by the Group are carried at cost less any accumulated amortisation
and any impairment losses (see note K). Amortisation commences
from the date when the developed product is available for use.
I TANGIBLE ASSETS AND DEPRECIATION Land and
buildings 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