Vtech 2013 Annual Report Download - page 52

50 VTech Holdings Ltd Annual Report 2013
Notes to the Financial Statements
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 profit or loss
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 the
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 each
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.
Principal Accounting Policies (Continued)
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
doubtful debts (see note (K)).
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 statement of cash flows.
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
(i) Financial guarantees issued
Financial guarantees are contracts that require the issuer
(i.e. the guarantor) to make specified payments to reimburse
the beneficiary of the guarantee (the “holder”) for a loss the
holder incurs because a specified debtor fails to make
payment when due in accordance with the terms of a debt
instrument.
Where the Group issues a financial guarantee, the fair value of
the guarantee (being the transaction price, unless the fair
value can otherwise be reliably estimated) is initially
recognised as deferred income within trade and other
creditors. Where consideration is received or receivable for the
issuance of the guarantee, the consideration is recognised in
accordance with the Group’s policies applicable to that
category of asset. Where no such consideration is received or
receivable, an immediate expense is recognised in profit or
loss on initial recognition of any deferred income.
(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.