Vtech 2016 Annual Report Download - page 53

49VTech Holdings Limited Annual Report 2016
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 statement of  nancial position at
cost less impairment losses. At the end of each reporting period,
the fair value of investment designated at fair value through
pro t or loss is remeasured, with any resultant gain or loss being
recognised in pro t or loss.
The impairment loss is assessed as the di erence between the
carrying amount of the other investments and the estimated
future cash  ows, discounted at the current market rate of return
for a similar  nancial asset where the e ect of discounting is
material. Impairment losses for other investments carried at cost
are not reversed.
M Stocks
Stocks are stated at the lower of cost and net realisable value. Cost
is calculated on the weighted average or the  rst-in- rst-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 recognised 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  xed repayment terms
or the e ect 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  nancial institutions, short-term
highly liquid investments that are readily convertible into known
amounts of cash and which are subject to an insigni cant 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 the statement of cash  ows.
P Trade and Other Creditors
Trade and other creditors are initially recognised at fair value and
thereafter stated at amortised cost unless the e ect 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 speci ed payments to reimburse the
bene ciary of the guarantee (the “holder”) for a loss the holder
incurs because a speci ed debtor fails to make payment when
due in accordance with the terms of a debt instrument.
Where the Group issues a  nancial 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 pro t 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
out ow of economic bene ts 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 end of the reporting period.
Where it is not probable that an out ow of economic bene ts
will be required, or the amount cannot be estimated reliably,
the obligation is disclosed as a contingent liability, unless
the probability of out ow of economic bene ts is remote.
Possible obligations, whose existence will only be con rmed
by the occurrence or non-occurrence of one or more future
events, are also disclosed as contingent liabilities unless the
probability of out ow of economic bene ts 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 pro t 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
end of the reporting period, and any adjustment to tax payable in
respect of previous years.
Deferred tax assets and liabilities arise from deductible and taxable
temporary di erences between the carrying amounts of assets
and liabilities for  nancial 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 pro ts will be available against which the asset can be
utilised, are recognised. Future taxable pro ts that may be capable
to support the recognition of deferred tax assets arising from
deductible temporary di erences include those that will arise from
the reversal of existing taxable temporary di erences.
The limited exceptions to recognition of deferred tax assets and
liabilities are those temporary di erences arising from goodwill not
deductible for tax purposes and the initial recognition of assets or
liabilities that a ect neither accounting nor taxable pro t (provided
that they are not part of a business combination).