Vtech 2004 Annual Report Download - page 34

32
Principal
Accounting Policies
VTech Holdings Ltd Annual Report 2004
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 realised 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 (see note K).
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 recognised
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,
leasehold buildings and if shorter
leasehold improvements
Machinery and equipment 3 to 5 years
Motor vehicles, furniture and fixtures 3 to 7 years
Moulds 1 year
J 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 (see note K).
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 amortised 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 recognised as an expense in the period in which the
termination takes place.
K 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
recognised whenever the carrying amount of an asset exceeds its
recoverable amount. Impairment losses are recognised in the
income statement.
The recoverable amount is the greater of the asset’s 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 amortisation, if no
impairment loss had been recognised.
L CONSTRUCTION IN PROGRESS Construction in progress
represents machinery and equipment under construction and
pending installation and are stated at cost less impairment losses
(see note K). Cost comprises the purchase costs of equipment and
the related installation costs.
Construction in progress is transferred to machinery and
equipment when the asset is substantially ready for its intended
use and depreciation will be provided at the appropriate rates in
accordance with the depreciation policies specified in note I.
No depreciation is provided in respect of construction in progress.
M OTHER INVESTMENTS Other investments held by the
Group are stated at fair value, with any resultant gain or loss being
recognised in the income statement. On disposal of an investment,
the difference between the net disposal proceeds and the carrying
amount is recognised 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 realisable 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 realisable 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 realisable value.
O TRADE DEBTORS Trade debtors are carried at anticipated
realisable value. An allowance is made for doubtful debts based
upon the evaluation of the recoverability of these outstanding
amounts at the balance sheet date. Bad debts are written off in the
income statement during the year in which they are identified.
P CASH AND CASH EQUIVALENTS For the purpose of the
cash flow statement, cash and cash equivalents comprise cash on
hand, demand deposits with banks and other financial institutions,
short-term highly liquid investments that are readily convertible into
known amounts of cash and which are subject to an insignificant risk
of changes in value and which have a maturity of three months or