Vtech 2011 Annual Report Download - page 42

40 VTech Holdings Ltd Annual Report 2011
Notes to the Financial Statements
Principal Accounting Policies (Continued)
Q Provisions and Contingent Liabilities (Continued)
(ii) Other provisions and contingent liabilities
Provisions are recognised for other liabilities of uncertain
timing or amount 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.
R Income Tax
Income tax for the year comprises current tax and movements
in deferred tax assets and liabilities. Current tax and movements
in deferred tax assets and liabilities are recognised in the
consolidated income statement except to the extent that they
relate to items recognised in other comprehensive income or
directly in equity, in which case the relevant amounts of tax are
recognised in other comprehensive income or directly in equity,
respectively.
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted at
balance sheet date, and any adjustment to tax payable in respect
of previous years.
Deferred tax assets and liabilities arise from deductible and
taxable temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the tax
bases respectively. Deferred tax assets also arise from unused tax
losses and unused tax credits.
Apart from certain limited exceptions, all deferred tax liabilities
and all deferred tax assets, to the extent that it is probable that
future taxable profits will be available against which the asset
can be utilised, are recognised. Future taxable profits that may be
capable to support the recognition of deferred tax assets arising
from deductible temporary differences include those that will
arise from the reversal of existing taxable temporary differences.
The limited exceptions to recognition of deferred tax assets and
liabilities are those temporary differences arising from goodwill
not deductible for tax purposes and the initial recognition of
assets or liabilities that affect neither accounting nor taxable profit
(provided that they are not part of a business combination).
The amount of deferred tax recognised is measured based on
the expected manner of realisation or settlement of the carrying
amount of the assets and liabilities, using tax rates enacted or
substantively enacted at the balance sheet date. Deferred tax
assets and liabilities are not discounted.
The carrying amount of a deferred tax asset is reviewed at the
balance sheet date and is reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to
allow the related tax benefit to be utilised. Any such reduction is
reversed to the extent that it becomes probable that sufficient
taxable profits will be available.
Additional income taxes that arise from the distribution of
dividends are recognised when the liability to pay the related
dividends is recognised.
Current tax balances and deferred tax balances, and movements
therein, are presented separately from each other and are not
offset. Current tax assets are offset against current tax liabilities,
and deferred tax assets against deferred tax liabilities if, and only
if, the Group has the legally enforceable right to set off current tax
assets against current tax liabilities.
S Employee Benefits
The Group operates a number of defined contribution retirement
schemes throughout the world, including Hong Kong, and a
defined benefit retirement scheme in Hong Kong. The assets of all
schemes are held separately from those of the Company and its
subsidiaries.
(i) Defined contribution plans
Contributions to the defined contribution schemes are
at various funding rates that are in accordance with the
local practice and regulations. Contributions relating to
the defined contribution schemes are charged to the
consolidated income statement as incurred.
(ii) Defined benefit plans
For long-term employee benefits, the Group’s net
obligations arising under the defined benefit scheme are
assessed and calculated by a qualified actuary using the
projected unit credit method. Under this method, the cost of
providing pensions is charged to the consolidated income
statement so as to spread the regular cost over the service
lives of employees in accordance with the advice of qualified
actuaries who carry out a full valuation of the plan every year.
Plan assets are measured at fair value. Pension obligations
are measured as the present value of the estimated future
cash flows of benefits derived from employee past service,
with reference to market yields on high quality corporate
bonds which have terms to maturity approximating the
terms of the related liability. When the benefits of a plan are
improved, the portion of the increased benefit relating to
past service by employees is recognised as an expense in
the consolidated income statement on a straight-line basis
over the average period until the benefits become vested.
If the benefits vest immediately, the expense is recognised
immediately in profit or loss.