Vtech 2008 Annual Report Download - page 35

VTech Holdings Ltd Annual Report 2008 33
PRINCIPAL ACCOUNTING POLICIES CONTINUED
K Impairment of Assets
(i) Impairment of receivables and other  nancial assets
Impairment losses for bad and doubtful debts are
recognised when there is objective evidence of
impairment and are measured as the di erence
between the carrying amount of the  nancial asset
and the estimated future cash  ows, discounted at the
asset’s original e ective interest rate where the e ect of
discounting is material. Objective evidence of impairment
includes observable data that comes to the attention of
the Group about events that have an impact on the asset’s
estimated future cash  ows such as signi cant  nancial
di culty of the debtor.
Impairment losses for receivables whose recovery is
considered doubtful but not remote are recorded using
an allowance account. When the Group is satis ed that
recovery is remote, the amount considered irrecoverable
is written o against trade receivable directly and any
amounts held in the allowance account relating to that
debt are reversed. Subsequent recoveries of amounts
previously charged to the allowance account are reversed
against the allowance account. Other changes in the
allowance account and subsequent recoveries of amounts
previously written o directly are recognised in the
income statement.
(ii) Impairment of other 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  ows are discounted to their
present value using a pre-tax discounted rate that re ects
current market assessments of the time value of money
and the risks speci c 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 speci 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 di erence
between the net disposal proceeds and the carrying amount is
recognised to the income statement.
N Stocks
Stocks are stated at the lower of cost and net realisable value.
Cost is calculated on the weighted average or the  rst-in-
 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 allowance for
impairment of doubtful debts, except where the debtors
are interest-free loans made to related parties without any
 xed repayment terms or the e ect of discounting would be
immaterial. In such cases, the receivables are stated at cost less
allowance for impairment of bad and doubtful debts.
P Cash and Cash Equivalents
For the purpose of the cash  ow statement, cash and cash
equivalents comprise cash on hand, demand deposits with
banks and other  nancial institutions, short-term highly liquid
investments that are readily convertible into known amounts
of cash and which are subject to an insigni 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  nancial
institutions, which are not restricted in its use. Bank overdrafts
are included in borrowings in current liabilities.