Vtech 2007 Annual Report Download - page 34

Notes to the Financial Statements
VTech Holdings Ltd
Annual Report 2007
32
PRINCIPAL ACCOUNTING POLICIES (continued)
D Basis of Consolidation
The consolidated fi nancial statements include the fi nancial
statements of the Company and its subsidiaries together
with the Group’s share of the results and retained post
acquisition reserves of its associates under the equity method
of accounting drawn up for the year ended 31st March. All
signifi cant inter-company balances and transactions and any
unrealised gains arising from inter-company transactions are
eliminated on consolidation.
Subsidiaries are those entities controlled by the Company.
Control exists when the Company has the power, directly or
indirectly, to govern the fi nancial and operating policies of an
entity so as to obtain benefi ts from its activities. The fi nancial
statements of subsidiaries are included in the consolidated
fi nancial statements from the date that control effectively
commences until the date that control effectively ceases, and
the share attributable to minority interests is deducted from
or added to profi t after taxation. Investments in subsidiaries
are stated at cost less impairment losses (see note (K)) in the
Company’s balance sheet.
Associates are those entities, not being subsidiaries, in which
the Group exercises signifi cant infl uence, but not control, over
the fi nancial and operating policies. The consolidated fi nancial
statements include the Group’s share of the total recognised
gains and losses of associates under the equity method, from
the date that signifi cant infl uence commences until the date
that signifi cant infl uence 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.
E Revenue Recognition
Revenue from the sale of goods is recognised in the
income statement when the signifi cant 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.
F 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 defi ned, technically
and commercially feasible, the attributable expenditure is
separately identifi able and the Group has suffi cient 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.
G 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
fi nancial 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.
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.
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