Vtech 2006 Annual Report Download - page 40

VTech Holdings Ltd Annual Report 2006 37
Principal Accounting Policies (continued)
K Impairment of Assets (continued)
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 favourable
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 buildings under
construction and is stated at cost less impairment losses (see
note (K)). Cost comprises the construction costs
of buildings.
Construction in progress is transferred to leasehold buildings
when the assets are completed and put into operational 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 and Other Debtors
Trade and other debtors are initially recognised at fair value
and thereafter stated at amortised cost less allowances for
doubtful debts, except where the debtors are interest-free or
the effect of discounting would be immaterial. In such cases,
the debtors are stated at cost less allowances for doubtful
debts. 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 less at acquisition. Bank overdrafts that are repayable on
demand and form an integral part of the Group’s cash
management are also included as a component of cash and
cash equivalents.
For the purpose of the balance sheet, cash and cash
equivalents are cash on hand, deposits with banks and other
financial institutions, which are not restricted in
its use. Bank overdrafts are included in borrowings in
current liabilities.
Q Trade and Other Creditors
Trade and other creditors are initially recognised at fair value
and thereafter stated at amortised cost unless the effect of
discounting would be immaterial, in which case they are
stated at cost.
R Provisions
A provision is recognised in the balance sheet when the
Group has a legal or constructive obligation as a result of past
events, and it is probable that an outflow of economic
benefits will be required to settle the obligation, and a reliable
estimate of the amount of the obligation can be made.
The Group recognises the estimated liability on expected
return claims with respect to products sold. This provision is
calculated based on past experience of the level of repairs
and returns.
The Group provides for expenses related to closure of business
locations and reorganisations of the Group’s operations which
are subject to detailed formal plans that are under
implementation or have been communicated to those
affected by the plans.
The Group recognises the expected costs of accumulating
compensated absences when employees render a service that
increases their entitlement to future compensated absences,
measured as the additional amount that the Group expects to
pay as a result of the unused entitlement that has
accumulated at the balance sheet date.