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VTech Holdings Limited Annual Report 2015 51
Principal Accounting Policies (Continued)
L Other Investments
Other investments are initially stated at fair value, which is their
transaction price unless fair value can be more reliably estimated
using valuation techniques whose variables include only data
from observable markets. Cost includes attributable transaction
costs. Subsequently, other investments that do not have a quoted
market price in an active market and whose fair value cannot be
reliably measured are recognised in the balance sheet at cost less
impairment losses (see note (K)).
M Stocks
Stocks are stated at the lower of cost and net realisable value. Cost
is calculated on the weighted average or the first-in-first-out basis,
and comprises materials, direct labour and an appropriate share
of production overheads incurred in bringing the inventories to
their present location and condition. Net realisable value is the
estimated selling price in the ordinary course of business, less
estimates of costs of completion and selling expenses.
When stocks are sold, the carrying amount of those stocks is
recognised as an expense in the period in which the related
revenue is recognised. The amount of any write-down of stocks
to net realisable value and all losses of stocks are recognised as an
expense in the period the write-down or loss occurs. The amount
of any reversal of any write-down of stocks is recognised as a
reduction in the amount of stocks as an expense in the period in
which the reversal occurs.
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.
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.