Vtech 2007 Annual Report Download - page 36

Notes to the Financial Statements
VTech Holdings Ltd
Annual Report 2007
34
PRINCIPAL ACCOUNTING POLICIES (continued)
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 specifi ed 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
Stocks are stated at the lower of cost and net realisable value.
Cost is calculated on the weighted average or the fi rst-in-
fi rst-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.
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 identifi ed.
P Cash and Cash Equivalents
For the purpose of the cash fl ow statement, cash and cash
equivalents comprise cash on hand, demand deposits with
banks and other fi nancial institutions, short-term highly liquid
investments that are readily convertible into known amounts
of cash and which are subject to an insignifi cant 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
fi nancial 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 and Contingent Liabilities
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 outfl ow of economic
benefi ts 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.
Where it is not probable that an outfl ow of economic benefi ts
will be required, or the amount cannot be estimated reliably,
the obligation is disclosed as a contingent liability, unless
the probability of outfl ow of economic benefi ts is remote.
Possible obligations, whose existence will only be confi rmed
by the occurrence or non-occurrence of one or more future
events are also disclosed as contingent liabilities unless the
probability of outfl ow of economic benefi ts is remote.
12aVtechCFS&Notes(E).indd34 2007/7/511:43:23PM