Vtech 2016 Annual Report Download - page 52

Notes to the Financial Statements
48 VTech Holdings Limited Annual Report 2016
Principal Accounting Policies (Continued)
H Tangible Assets and Depreciation
Tangible assets are stated at cost less accumulated depreciation
and impairment losses (see note (K)).
Depreciation is calculated to write o the cost of assets on a
straight-line basis over their estimated useful lives which are
as follows:
Freehold land is not depreciated.
Leasehold land Over the unexpired term
of lease
Freehold buildings, medium-term and
short-term leasehold buildings and
leasehold improvements
10 to 50 years or lease
term, if shorter
Moulds 1 year
Machinery and equipment 3 to 5 years
Computers, motor vehicles,
furniture and fixtures 3 to 7 years
Where parts of a tangible asset have di erent useful lives, the cost
of the item is allocated on a reasonable basis between the parts
and each part is depreciated separately. Both the useful life of an
asset and its residual value, if any, are reviewed annually.
Gains or losses arising from the retirement or disposal of tangible
assets are determined as the di erence between the estimated net
disposal proceeds and the carrying amount of the assets and are
recognised in pro t or loss on the date of retirement or disposal.
I Construction in Progress
Construction in progress represents land and buildings under
development and is stated at cost less impairment losses (see
note (K)). Cost comprises the construction costs of buildings and
costs paid to acquire land use rights.
Building construction costs are transferred to leasehold buildings
when the assets are completed and put into operational use
and depreciation will be provided at the appropriate rates in
accordance with the depreciation policies (see note (H)).
No depreciation or amortisation is provided in respect of
construction in progress.
J Leases
Leases of tangible assets under which the Group assumes
substantially all the risks and rewards of ownership are classi ed
as  nance leases. Tangible assets acquired by way of  nance lease
is stated at an amount equal to the lower of its fair value and the
present value of the minimum lease payments at inception of
the lease less accumulated depreciation and impairment losses
(see note (K)). Finance charges are recognised in pro t or loss in
proportion of the capital balances outstanding.
Leases of assets under which substantially all the bene ts and risks
of ownership are e ectively retained by the lessor are classi ed as
operating leases. Payments made under operating leases (net of
any incentives received from the lessor) are recognised in pro t or
loss on a straight-line basis over the period of the lease.
Leasehold land payments are up-front payments to acquire long-
term leasehold interests in land. These payments are stated at
cost and are amortised on a straight-line basis over the respective
period of the leases.
When an operating lease is terminated before the lease period has
expired, any payment required to be made to the lessor by way
of penalty is recognised as an expense in the period in which the
termination takes place.
K Impairment of Assets
(i) Impairment of debtors and other  nancial assets
Impairment losses for doubtful debts are recognised when
there is objective evidence of impairment and are measured
as the di erence between the carrying amount of the  nancial
asset and the estimated future cash  ows, discounted at
the asset’s original e ective interest rate where the e ect of
discounting is material. Objective evidence of impairment
includes observable data that comes to the attention of
the Group about events that have an impact on the asset’s
estimated future cash  ows such as signi cant  nancial
di culty of the debtor.
Impairment losses for debtors whose recovery is considered
doubtful but not remote are recorded using an allowance
account. When the Group is satis ed that recovery is remote,
the amount considered irrecoverable is written o against
trade debtors directly and any amounts held in the allowance
account relating to that debt are reversed. Subsequent
recoveries of amounts previously charged to the allowance
account are reversed against the allowance account. Other
changes in the allowance account and subsequent recoveries
of amounts previously written o directly are recognised in
pro t or loss.
(ii) Impairment of other assets
The carrying amounts of the Group’s assets including tangible
assets, construction in progress and interest in subsidiaries, are
reviewed at the end of each reporting period to determine
whether there is any indication of impairment. If any such
indication exists, the asset’s recoverable amount is estimated.
– Calculation of recoverable amount
The recoverable amount is the greater of the asset’s
fair value less costs of disposal and value in use. In
assessing value in use, the estimated future cash  ows
are discounted to their present value using a pre-tax
discount rate that re ects current market assessments
of the time value of money and the risks speci c to the
asset. Where an asset does not generate cash in ows
largely independent of those from other assets, the
recoverable amount is determined for the smallest group
of assets that generates cash in ows independently
(i.e. a cash-generating unit).
– Recognition of impairment losses
An impairment loss is recognised as an expense in pro t
or loss whenever the carrying amount exceeds the
recoverable amount.
– Reversal of impairment losses
An impairment loss is reversed if there has been a
favourable change in the estimates used to determine
the recoverable amount. A reversal of an impairment
loss is limited to the asset’s carrying amount that would
have been determined had no impairment loss been
recognised in prior years. Reversals of impairment losses
are credited to pro t or loss in the year in which the
reversals are recognised.
– Interim  nancial reporting and impairment
Under the Listing Rules, the Group is required to prepare
an interim  nancial report in compliance with IAS 34,
Interim Financial Reporting, in respect of the  rst six
months of the  nancial year. At the end of the interim
period, the Group applies the same impairment testing,
recognition, and reversal criteria as it would at the end of
the  nancial year.