Annual report 2014
93
NOTES TO THE FINANCIAL STATEMENTS
31 December 2014 (continued)
6. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
6.3 Key sources of estimation uncertainty (continued)
(d) Impairment of investments in subsidiaries
The Directors review the investment in subsidiaries for impairment when there is an indication of
impairment. The recoverable amounts of the investment in subsidiaries are assessed by reference
to the value in use of the subsidiaries.
The value in use is the net present value of the projected future cash flows derived from the
business operations of the respective subsidiaries discounted at an appropriate discount rate.
For such discounted cash flow method, it involves the use of estimated future results and a set of
assumptions to reflect its income and cash flows. Judgement had also been used to determine
the discount rate for the cash flows and the future growth of the businesses of the subsidiaries.
(e) Impairment of receivables
The Group makes impairment of receivables based on an assessment of the recoverability of
receivables. Impairment is applied to receivables where events or changes in circumstances
indicate that the carrying amounts may not be recoverable. Management specifically analyses
historical bad debt, customer concentration, customer creditworthiness, current economic
trends and changes in customer payment terms when making a judgement to evaluate the
adequacy of impairment of receivables. Where expectations differ from the original estimates,
the differences would impact the carrying amount of receivables.
(f) Deferred tax assets
Deferred tax assets are recognised for all unused tax losses and unabsorbed capital allowances
to the extent that it is probable that future taxable profits would be available against which the
losses and capital allowances could be utilised. Significant management judgement is required
to determine the amount of deferred tax assets that could be recognised, based on the likely
timing and extent of future taxable profits together with future tax planning strategies.
(g) Write down for obsolete or slow moving inventories
The Group writes down its obsolete or slow moving inventories based on assessment of their
estimatednet sellingprice. Inventories arewrittendownwhenevents or changes incircumstances
indicate that the carrying amounts could not be recovered. Management specifically analyses
sales trend and current economic trends whenmaking this judgement to evaluate the adequacy
of the write down for obsolete or slow moving inventories. Where expectations differ from the
original estimates, the differences would impact the carrying amount of inventories.
(h) Executives’ share scheme
The Group measures the cost of equity-settled transactions with employees by reference to the
fair value of the employee share options at the date at which they are granted. Judgement is
required in determining the most appropriate valuation model for the share options granted,
depending on the terms and conditions of the grant. The Group is also required to use
judgement in determining the most appropriate inputs to the valuation model including volatility
and dividend yield. The assumptions and model used are disclosed in Note 32 to the financial
statements.
