Vtech 2010 Annual Report Download - page 44

42 VTech Holdings Ltd Annual Report 2010
Notes to the Financial Statements
Principal Accounting Policies (Continued)
I Tangible Assets and Depreciation (Continued)
All other tangible assets are stated at cost less accumulated
depreciation and impairment losses (see note (L)).
Depreciation is calculated to write off the cost or revalued
amount of assets on a straight-line basis over their estimated
useful lives which are as follows:
Long-term leasehold buildings Lease term
Freehold buildings, short-term 10 to 30 years or
leasehold buildings and lease term, if shorter
leasehold improvements
Moulds 1 year
Machinery and equipment 3 to 5 years
Computers, motor vehicles, 3 to 7 years
furniture and fixtures
Where parts of a tangible asset have different useful lives, the
cost or valuation of the item is allocated on a reasonable basis
between the parts and each part is depreciated separately.
Both the useful life of an asset and its residual value, if any, are
reviewed annually.
Gains or losses arising from the retirement or disposal of tangible
assets are determined as the difference between the estimated
net disposal proceeds and the carrying amount of the assets
and are recognised in profit or loss on the date of retirement or
disposal. Any related revaluation surplus is transferred from the
revaluation reserve to retained profits and is not reclassified to
profit or loss.
J Construction in Progress
Construction in progress represents land and buildings under
development and are stated at cost less impairment losses (see
note (L)). Cost comprises the construction costs of buildings and
costs paid to acquire land use rights.
Building construction costs are 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 specified in note (I).
No depreciation or amortisation is provided in respect of
construction in progress.
K Leases
Leases of property, plant and equipment in terms of which
that the Group assumes substantially all the risks and rewards
of ownership are classified as finance leases. Property, plant
and equipment acquired by way of finance lease is stated at
an amount equal to the lower of its fair value and the present
value of the minimum lease payments at inception of the lease
less accumulated depreciation and impairment losses (see note
(L)). Finance charges are charged to the income statement in
proportion of the capital balances outstanding.
Leases of assets under which all the benefits and risks of
ownership are effectively retained by the lessor are classified as
operating leases. Payments made under operating leases (net
of any incentives received from the lessor) are charged to the
income statement on a straight-line basis over the period of the
lease.
Leasehold land payments are up-front payments to acquire
long-term leasehold interests in land. These payments are
stated at cost and are amortised on a straight-line basis over the
respective period of the leases.
When an operating lease is terminated before the lease period
has expired, any payment required to be made to the lessor
by way of penalty is recognised as an expense in the period in
which the termination takes place.
L Impairment of Assets
(i) Impairment of debtors and other financial assets
Impairment losses for doubtful debts are recognised
when there is objective evidence of impairment and are
measured as the difference between the carrying amount
of the financial asset and the estimated future cash flows,
discounted at the asset’s original effective interest rate
where the effect 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 flows such as
significant financial difficulty of the debtor.
Impairment losses for debtors 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 profit or loss.
(ii) Impairment of other assets
The carrying amounts of the Group’s assets including
property, plant and equipment, construction in progress 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.
– Recoverable amount
The recoverable amount is the greater of the
asset’s fair value less costs to sell 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.