Vtech 2009 Annual Report Download - page 38

36 VTech Holdings Ltd Annual Report 2009
NOTES TO THE FINANCIAL STATEMENTS
PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
C Basis of Preparation of the Financial
Statements (Continued)
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 affects only that period or in the period of
the revision and future periods if the revision affects both
current and future periods.
Judgements and accounting estimates made by
management in the application of IFRSs that have significant
effect on the financial statements are described in note 27.
D Basis of Consolidation
The consolidated financial statements include the financial
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 significant 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 financial and operating policies
of an entity so as to obtain benefits from its activities. The
financial statements of subsidiaries are included in the
consolidated financial 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 profit 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 significant influence, but not control,
over the financial and operating policies. The consolidated
financial statements include the Group’s share of the total
recognised gains and losses of associates under the equity
method, from the date that significant influence commences
until the date that significant influence 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 significant 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 as it accrues using the
effective interest method. 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 defined, technically
and commercially feasible, the attributable expenditure
is separately identifiable and the Group has sufficient
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 the exchange rates
approximating the foreign exchange rates ruling at the dates
of the transactions and balance sheets are translated at the
exchange rates ruling at the balance sheet date.
Net exchange differences arising from the translation of the
financial 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.
On disposal of a foreign operation, the cumulative amount
of the exchange differences recognised in exchange reserve
which relate to that foreign operation is included in the
calculation of the profit or loss on disposal.