Vtech 2016 Annual Report Download - page 51

Notes to the Financial Statements
47VTech Holdings Limited Annual Report 2016
Principal Accounting Policies (Continued)
C Basis of Preparation of the Financial Statements
These  nancial statements are prepared on the historical cost basis
as modi ed by the revaluation of derivative  nancial instruments
stated at their fair value as explained in the accounting policies set
out below.
The preparation of the  nancial statements in conformity with
IFRSs requires management to make judgements, estimates and
assumptions that a ect the application of policies and reported
amounts of assets, liabilities, income and expenses. The estimates
and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the
judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may di er
from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision a ects
only that period or in the period of the revision and future periods
if the revision a ects both current and future periods.
Judgements made by management in the application of IFRSs
that have signi cant e ect on the  nancial statements and major
sources of estimation uncertainty are discussed in note 26.
D Basis of Consolidation
The consolidated  nancial statements include the  nancial
statements of the Company and its subsidiaries and structured
entities. All signi cant inter-company balances and transactions
and any unrealised gains arising from inter-company transactions
are eliminated on consolidation.
Subsidiaries (including structured entities) are entities controlled
by the Group. The Group controls an entity when it is exposed,
or has rights, to variable returns from its involvement with the
entity and has the ability to a ect those returns through its power
over the entity. When assessing whether the Group has power,
only substantive rights (held by the Group and other parties)
are considered.
An investment in a subsidiary and a structured entity is
consolidated into the consolidated  nancial statements from
the date that control commences until the date that control
ceases. Intra-group balances, and transactions and cash  ows
and any unrealised pro ts arising from intra-group transactions
are eliminated in full in preparing the consolidated  nancial
statements. Unrealised losses resulting from intra-group
transactions are eliminated in the same way as unrealised gains
but only to the extent that there is no evidence of impairment. The
assets and liabilities of the structured entity, VTech Share Purchase
Scheme Trust, are included in the Group’s consolidated statement
of  nancial position and the shares held by the VTech Share
Purchase Scheme Trust are presented as a deduction in equity as
Shares held for Share Purchase Scheme.
Changes in the Group’s interests in a subsidiary that do not result
in a loss of control are accounted for as equity transactions,
whereby adjustments are made to the amounts of controlling
and non-controlling interests within consolidated equity to re ect
the change in relative interests, but no adjustments are made to
goodwill and no gain or loss is recognised.
When the Group loses control of a subsidiary, it is accounted
for as a disposal of the entire interest in that subsidiary, with a
resulting gain or loss being recognised in pro t or loss. Any interest
retained in that former subsidiary at the date when control is
lost is recognised at fair value and this amount is regarded as
the fair value on initial recognition of a  nancial asset or, when
appropriate, the cost on initial recognition of an investment in an
associate or a joint venture.
Investments in subsidiaries in the Company’s statement of  nancial
position are stated at cost less impairment losses (see note (K)). The
 nancial results of subsidiaries are accounted for by the Company
on the basis of dividends received and receivable.
E Revenue Recognition
Revenue is measured at the fair value of the consideration received
or receivable. Provided it is probable that the economic bene ts
will  ow to the Group and the revenue and costs, if applicable,
can be measured reliably, revenue is recognised in pro t or loss
as follows:
i. Revenue from the sale of goods is recognised when the
signi cant risks and rewards of ownership have been
transferred to the buyer. Revenue is stated net of sales taxes,
returns, rebates and discounts.
ii. Revenue from the provision of services is recognised when
the services are rendered.
iii. Interest income is recognised as it accrues using the e ective
interest method.
iv. Dividend income is recognised when the Group’s right to
receive payment is established.
F Research and Development
Research and development costs comprise all costs that are
directly attributable to research and development activities or that
can be allocated on a reasonable basis to such activities.
Expenditure on research activities is recognised as an expense in
the period in which it is incurred.
Expenditure on development activities is capitalised only if the
product or process is clearly de ned, technically and commercially
feasible, the attributable expenditure is separately identi able
and the Group has su cient resources and the intention to
complete development. The expenditure capitalised includes
the cost of materials, direct labour and an appropriate proportion
of overheads which are directly attributable to development
activities. Capitalised development costs are stated at cost less
accumulated amortisation and impairment losses (see note (K)).
Development expenditure that does not meet the above criteria is
recognised as an expense in the period in which it is incurred.
Amortisation is calculated to write o capitalised development
costs on a straight-line basis over their estimated useful lives,
commencing from the date when the products are put into
commercial production.
G Translation of Foreign Currencies
Foreign currency transactions during the year are translated into
United States dollars at the foreign exchange rates ruling at the
transaction dates. Monetary assets and liabilities denominated in
foreign currencies are translated into United States dollars at the
foreign exchange rates ruling at the end of the reporting period.
Exchange gains and losses are recognised in pro t or loss.
Non-monetary assets and liabilities that are measured in terms of
historical cost in a foreign currency are translated using the foreign
exchange rates ruling at the transactions dates. Non-monetary
assets and liabilities denominated in foreign currencies that are
stated at fair value are translated using the foreign exchange rates
ruling at the dates the fair value was determined.
The results of foreign operations are translated into United States
dollars at the exchange rates approximating the foreign exchange
rates ruling at the dates of the transactions. Statement of  nancial
position items are translated into United States dollars at the
closing foreign exchange rates at the end of the reporting period.
On disposal of a foreign operation, the cumulative amount of
the exchange di erences relating to that foreign operation is
reclassi ed from equity to pro t or loss when the pro t or loss on
disposal is recognised.