Vtech 2008 Annual Report Download - page 33

VTech Holdings Ltd Annual Report 2008 31
PRINCIPAL ACCOUNTING POLICIES CONTINUED
C Basis of Preparation of the Financial Statements
These  nancial statements are prepared on the historical cost
basis as modi ed by the revaluation of certain properties.
The preparation of the  nancial statements in conformity with
IFRS requires management to make judgements, estimates and
assumptions that a ect the application of policies and reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the  nancial statements and
the reported amounts of revenues and expenses during the
reporting period. The estimates and associated assumptions
are based on historical experience and various other factors
that are believed to be reasonable under the circumstances,
the results of which form the basis of making the judgements
about carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may di er from
these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision
a ects only that period or in the period of the revision and
future periods if the revision a ects both current and future
periods.
Judgements and accounting estimates made by management
in the application of IFRS that have signi cant e ect on the
 nancial statements are described in note 26.
D Basis of Consolidation
The consolidated  nancial statements include the  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
signi 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  nancial and operating policies of an
entity so as to obtain bene ts from its activities. The  nancial
statements of subsidiaries are included in the consolidated
 nancial statements from the date that control e ectively
commences until the date that control e ectively ceases, and
the share attributable to minority interests is deducted from
or added to pro 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 signi cant in uence, but not control, over
the  nancial and operating policies. The consolidated  nancial
statements include the Group’s share of the total recognised
gains and losses of associates under the equity method, from
the date that signi cant in uence commences until the date
that signi cant in 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 signi 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 e ective 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 de ned, technically
and commercially feasible, the attributable expenditure is
separately identi able and the Group has su 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 o 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.