Vtech 2011 Annual Report Download - page 43

VTech Holdings Ltd Annual Report 2011 41
Principal Accounting Policies (Continued)
S Employee Benefits (Continued)
(iii) Equity and equity related compensation benefits
The fair value of share options granted to employees is
recognised as an employee cost with a corresponding
increase in a capital reserve within equity. The fair value
is measured at grant date using the Black-Scholes
option pricing model, taking into account the terms and
conditions upon which the options were granted. Where
the employees have to meet vesting conditions before
becoming unconditionally entitled to the share options, the
total estimated fair value of the share option is spread over
the vesting period, taking into account the probability that
the options will vest.
During the vesting period, the number of share options
that is expected to vest is reviewed. Any adjustment to the
cumulative fair value recognised in prior years is charged/
credited to the consolidated income statement for the year
of the review, unless the original employee expenses qualify
for recognition as an asset, with a corresponding adjustment
to the capital reserve. On vesting date, the amount
recognised as an expense is adjusted to reflect the actual
number of share options that vest (with a corresponding
adjustment to the capital reserve) except where forfeiture
is only due to not achieving vesting conditions that relate
to the market price of the Company’s shares. The equity
amount is recognised in the capital reserve until either
the option is exercised (when it is transferred to the share
premium account) or the option expires (when it is released
directly to retained profits).
For shares of the Company granted under the Share
Purchase Scheme (“Awarded Shares”), the estimated fair
value of the options granted and the cost of Awarded Shares
are recognised as employee share-based compensation
expense and credited to capital reserve under equity over
the vesting periods.
At each balance sheet date, the Group revises its estimates of
the number Awarded Shares that are expected to ultimately
vest. Any resulting adjustment to the cumulative fair value
recognised in prior years is charged/credited to consolidated
income statement in the current year, with a corresponding
adjustment to capital reserve.
T Share held for Share Purchase Scheme
Where the VTech Share Purchase Scheme Trust purchases
shares of the Company from the market, the consideration paid,
including any directly attributable incremental costs, is presented
as Shares held for Share Purchase Scheme and deducted from
total equity.
Upon vesting, the related costs of the vested Awarded Shares
recognised are credited to Shares held for Share Purchase
Scheme, with a corresponding decrease in capital reserve for
shares purchased with contributions paid to the VTech Share
Purchase Scheme Trust, and decrease in retained profits for
shares purchased through reinvesting dividends received on the
vested Awarded Shares.
U Derivative Financial Instruments
Derivative financial instruments are recognised initially at fair
value. At each balance sheet date the fair value is remeasured.
The gain or loss on remeasurement to fair value is recognised
immediately in profit or loss, except where the derivatives qualify
for cash flow hedge accounting or hedge the net investment in a
foreign operation, in which case recognition of any resultant gain
or loss depends on the nature of the item being hedged.
Cash flow hedges
Where a derivative financial instrument is designated as a hedge
of the variability in cash flows of a recognised asset or liability or
a highly probable forecast transaction or the foreign currency
risk of a committed future transaction, the effective portion of
any gains or losses on remeasurement of the derivative financial
instrument to fair value are recognised in other comprehensive
income and accumulated separately in equity in the hedging
reserve. The ineffective portion of any gain or loss is recognised
immediately in profit or loss.
If a hedge of a forecast transaction subsequently results in the
recognition of a non-financial asset or non-financial liability, the
associated gain or loss is reclassified from equity to be included in
the initial cost or other carrying amount of the non-financial asset
or liability.
If a hedge of a forecast transaction subsequently results in
the recognition of a financial asset or a financial liability, the
associated gain or loss is reclassified from equity to profit or loss
in the same period or periods during which the asset acquired
or liability assumed affects profit or loss (such as when interest
income or expense is recognised).
For cash flow hedges, other than those covered by the preceding
two policy statements, the associated gain or loss is reclassified
from equity to profit or loss in the same period or periods during
which the hedged forecast transaction affects profit or loss.
When a hedging instrument expires or is sold, terminated
or exercised, or the entity revokes designation of the hedge
relationship but the hedged forecast transaction is still expected
to occur, the cumulative gain or loss at that point remains
in equity until the transaction occurs and it is recognised in
accordance with the above policy. If the hedged transaction is no
longer expected to take place, the cumulative unrealised gain or
loss is reclassified from equity to profit or loss immediately.
V Interest–bearing Borrowings
Interest-bearing borrowings are recognised initially at fair
value less attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised
cost with any difference between the amount initially recognised
and redemption value being recognised in profit or loss over the
period of the borrowings, together with any interest and fees
payable, using the effective interest method.