Vtech 2011 Annual Report Download - page 40

38 VTech Holdings Ltd Annual Report 2011
Notes to the Financial Statements
Principal Accounting Policies (Continued)
H Tangible Assets and Depreciation (Continued)
Changes arising on the revaluation of properties held for own
use are generally dealt with in other comprehensive income and
are accumulated separately in equity in the property revaluation
reserve. The only exceptions are as follows:
– When a deficit arises on revaluation, it will be charged to
profit or loss to the extent that it exceeds the amount held in
the reserve in respect of that same asset immediately prior to
the revaluation; and
– When a surplus arises on revaluation, it will be credited to
profit or loss to the extent that a deficit on revaluation in
respect of that same asset had previously been charged to
profit or loss.
All other tangible assets are stated at cost less accumulated
depreciation and impairment losses (see note (K)).
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:
Leasehold land classified Over the unexpired
as finance lease term of lease
Medium-term leasehold buildings Lease term
Freehold buildings, short-term 10 to 30 years or lease
leasehold buildings and 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.
I Construction in Progress
Construction in progress represents land and buildings under
development and are stated at cost less impairment losses (see
note (K)). 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 (see note (H)).
No depreciation or amortisation is provided in respect of
construction in progress.
J 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
(K)). Finance charges are charged to the consolidated income
statement in proportion of the capital balances outstanding.
Leases of assets under which substantially 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 consolidated 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.
K Impairment of Assets
(i) Impairment of debtors and other financial assets
Impairment losses for bad and 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 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,
interest in subsidiaries, interest in associates and other
investments, 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.