Vtech 2009 Annual Report Download - page 40

38 VTech Holdings Ltd Annual Report 2009
NOTES TO THE FINANCIAL STATEMENTS
PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
K Impairment of Assets (Continued)
(i) Impairment of receivables and other financial assets
(Continued)
Impairment losses for receivables whose recovery
is considered doubtful but not remote are recorded
using an allowance account. When the Group
is satisfied that recovery is remote, the amount
considered irrecoverable is written off against trade
debtors and bills 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 off 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, 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 flows are discounted to
their present value using a pre-tax discounted rate that
reflects current market assessments of the time value
of money and the risks specific 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 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 in the income statement.
M Stocks
Stocks are stated at the lower of cost and net realisable
value. Cost is calculated on the weighted average or the
first-in-first-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.
N 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
fixed repayment terms or the effect of discounting would be
immaterial. In such cases, the receivables are stated at cost
less allowance for impairment of bad and doubtful debts.
O Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand, demand
deposits with banks and other financial institutions,
short-term highly liquid investments that are readily
convertible into known amounts of cash and which are
subject to an insignificant 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 cash flow statement.
P 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.
Q 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, it is probable that an outflow of economic
benefits 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 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 outflow of economic
benefits will be required, or the amount cannot be estimated
reliably, the obligation is disclosed as a contingent liability,
unless the probability of outflow of economic benefits is
remote. Possible obligations, whose existence will only be
confirmed by the occurrence or non-occurrence of one
or more future events, are also disclosed as contingent
liabilities unless the probability of outflow of economic
benefits is remote.