Notes To The Financial Statements
MFRs 9 Financial Instruments
2. BAsIs oF PREPARATIon (conT’d)
(c) significant accounting estimates and judgements
the summary of accounting policies as described in Note 3 are essential to understand the Group’s and the company’s results of operations, financial position, cash flows and other disclosures. certain of these accounting policies require critical accounting estimates that involve complex and subjective judgements and the use of assumptions, some of which may be for matters that are inherently uncertain and susceptible to change.
Directors exercise their judgement in the process of applying the Group’s accounting policies.
estimates, assumptions concerning the future and judgements are made in the preparation of the financial statements. they affect the application of the Group’s accounting policies and reported amounts of assets, liabilities, income and expenses, and disclosures made. estimates and underlying assumptions are assessed on an on-going basis and are based on experience and relevant factors, including expectations of future events that are believed to be reasonable under the circumstances. the actual results may differ from the judgements, estimates and assumptions made by management, and will seldom equal the estimated results.
the key assumptions concerning the future and other key sources of estimation or uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are set out below:
depreciation of property, plant and equipment
the estimates for the residual values, useful lives and related depreciation charges for property, plant and equipment are based on commercial factors which could change significantly as a result of technical innovations and competitors’ actions in response to the market conditions.
the Group anticipates that the residual values of its property, plant and equipment will be insignificant. As a result, residual values are not being taken into consideration for the computation of the depreciable amount.
changes in the expected level of usage and technological development could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised.
Impairment of loan and receivables
the Group assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. to determine whether there is objective evidence of impairment, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments.
where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics.
Income taxes
there are certain transactions and computations for which the ultimate tax determination may be different from the initial estimate. the Group and the company recognise tax liabilities based on this understanding of the prevailing tax laws and estimates of whether such taxes will be due in the ordinary course of business.
where the final outcome of these matters is different from the amounts that were initially recognised, such difference will impact the income tax and deferred tax provisions in the year in which such determination is made.
Notes To The Financial Statements
As At 31 December 2013
2. BAsIs oF PREPARATIon (conT’d)
(c) significant accounting estimates and judgements (cont’d) Fair value of financial instruments
Management uses valuation techniques in measuring the fair value of financial instruments where active market quotes are not available. Details of the assumptions used are given in the notes regarding financial assets and liabilities. in applying the valuation techniques management makes maximum use of market inputs, and uses estimates and assumptions that are, as far as possible, consistent with observable data that market participants would use in pricing the instrument. where applicable data is not observable, management uses its best estimate about the assumptions that market participants would make. these estimates may vary from the actual prices that would be achieved in an arm’s length transaction at the end of the reporting period.
development costs
initial capitalisation of development costs is based on management’s judgement that technical and economical feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model. in determining the amounts to be capitalised, management makes assumptions regarding the expected future cash generations of the project, discount rates to be applied and the expected period of benefits.
3. sIGnIFIcAnT AccoUnTInG PolIcIEs (a) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities, including structured entities, controlled by the company. the financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
investments in subsidiary companies are measured in the company’s statement of financial position at cost less any impairment losses, unless the investment is classified as held for sale or distribution. the cost of investment includes transaction costs.
(ii) Business combination
business combinations are accounted for using the acquisition method from the acquisition date, which is the date on which control is transferred to the Group.
for new acquisitions, the Group measures the cost of goodwill at the acquisition date as:
• The fair value of the consideration transferred; plus
• The recognised amount of any non-controlling interests in the acquiree; plus
• If the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less
• The net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
when the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
for each business combination, the Group elects whether it measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets at the acquisition date.
transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.
Notes To The Financial Statements
As At 31 December 2013
3. sIGnIFIcAnT AccoUnTInG PolIcIEs (conT’d) (a) Basis of consolidation (cont’d)
(iii) Acquisitions of non-controlling interest
the Group treats all changes in its ownership interest in a subsidiary that do not result in a loss of control as equity transactions between the Group and its non-controlling interest holders. Any difference between the Group’s share of net assets before and after the change, and any consideration received or paid, is adjusted to or against Group reserves.
(iv) Loss of control
upon the loss of control of a subsidiary, the Group derecognises the assets and liabilities of the former subsidiary, any non-controlling interests and the other components of equity related to the former subsidiary from the consolidated statement of financial position. Any surplus or deficit arising on the loss of control is recognised in profit or loss. if the Group retains any interest in the former subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is accounted for as equity accounted investee or as an available-for-sale financial asset depending on the level of influence retained.
(v) Non-controlling interests
Non-controlling interests at the end of the reporting period, being the equity in a subsidiary not attributable directly or indirectly to the equity holders of the company, are presented in the consolidated statement of financial position and statement of changes in equity within equity, separately from equity attributable to the owners of the company. Non-controlling interests in the results of the Group is presented in the consolidated statement of profit or loss and the other comprehensive income as an allocation of the profit or loss and the comprehensive income for the year between non-controlling interests and owners of the company.
(vi) Transactions eliminated on consolidated
intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.
unrealised gain arising from transactions with equity-accounted associates and joint ventures are eliminated against the investment to the extent of the Group’s interest in the investees. unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
(b) Foreign currency
Foreign currency transactions and balances
transactions in foreign currency are recorded in the functional currency of the respective Group entities using the exchange rates prevailing at the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on that date.
Non-monetary items denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date on which the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the rate at the date of transaction.
exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are included in profit or loss for the period. exchange differences arising on the translation of non-monetary items carried at fair value are included in profit or loss for the period except for the differences arising on the translation of non-monetary items in respect of which gains and losses are recognised directly in equity.
exchange differences arising from such non-monetary items are also recognised directly in equity.
Notes To The Financial Statements
As At 31 December 2013
3. sIGnIFIcAnT AccoUnTInG PolIcIEs (conT’d) (c) Financial assets
financial assets are recognised on the statements of financial position when, and only when, the Group and the company become a party to the contractual provisions of the financial instrument.
when financial assets are recognised initially, they are measured at fair value, plus in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs.
financial assets are initially recognised at fair value plus transaction costs except for financial assets at fair value through profit or loss, which are recognised at fair value. transaction costs for financial assets at fair value through profit or loss are recognised immediately in profit or loss.
the Group and the company classify their financial assets depending on the purpose for which it was acquired at initial recognition, into the following categories:
(i) Loans and receivables
loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. they are presented as current assets, except for those maturing later than 12 months after the end of the reporting period which are presented as non-current assets.
After initial recognition, financial assets categorised as loans and receivables are measured at amortised cost using the effective interest method, less impairment. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process.
(ii) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. they are presented as non-current assets unless management intends to dispose of the assets within 12 months after the end of the reporting period.
After initial recognition, available-for-sale financial assets are measured at fair value. Any gains or losses from changes in fair value of the financial asset are recognised in other comprehensive income, except that impairment losses, foreign exchange gains and losses on monetary instruments and interest calculated using the effective interest method are recognised in profit or loss. the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment when the financial asset is derecognised. interest income calculated using the effective interest method is recognised in profit or loss. Dividends on an available-for-sale equity instrument are recognised in profit or loss when the Group’s and the company’s right to receive payment is established.
investment in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost less impairment loss.
Regular way purchase or sale of financial assets
regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned. All regular way purchases and sales of financial assets are recognised or derecognised on the trade date i.e., the date that the Group and the company commit to purchase or sell the asset.
Notes To The Financial Statements
As At 31 December 2013
3. sIGnIFIcAnT AccoUnTInG PolIcIEs (conT’d) (c) Financial assets (cont’d)
Derecognition
financial assets are derecognised when the contractual rights to receive cash flows from the financial assets have expired or have been transferred and the Group and the company have transferred substantially all risks and rewards of ownership. on derecognition of a financial asset, the difference between the carrying amount and the sum of consideration received and any cumulative gains or loss that had been recognised in equity is recognised in the profit or loss.
(d) Financial liabilities
financial liabilities are recognised on the statements of financial position when, and only when the Group and the company become a party to the contractual provisions of the financial instrument.
All financial liabilities are initially recognised at fair value plus transaction cost and subsequently carried at amortised cost using the effective interest method, other than those categorised as fair value through profit or loss. changes in the carrying value of these liabilities are recognised in the profit or loss.
other financial liabilities measured at amortised cost
other financial liabilities are non-derivatives financial liabilities. the Group’s and the company’s other financial liabilities comprise trade and other payables and borrowings. other financial liabilities are classified as current liabilities; except for maturities more than 12 months after the end of the reporting period, in which case they are classified as non-current liabilities.
other financial liabilities are subsequently measured at amortised cost using the effective interest method.
Gains and losses are recognised in the profit or loss when the liabilities are derecognised as well as through the effective interest rate method amortisation process.
Derecognition
A financial liability or a part of it is derecognised when, and only when, the obligation specified in the contract is discharged or cancelled or expires. on derecognition of a financial liability, the difference between the carrying amount of the financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss.
Offsetting of financial instruments
A financial asset and financial liability are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.
(e) Property, plant and equipment
All items of property, plant and equipment are initially recorded at cost. the cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the company and the cost of the item can be measured reliably.
Subsequent to recognition, property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. when significant parts of property, plant and equipment are required to be replaced in intervals, the Group and the company recognise such parts as individual assets with specific useful lives and depreciation, respectively. likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the property, plant and equipment as a replacement if the criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred.
Notes To The Financial Statements
As At 31 December 2013
3. sIGnIFIcAnT AccoUnTInG PolIcIEs (conT’d) (e) Property, plant and equipment (cont’d)
freehold land is stated at valuation less impairment losses recognised after the date of revaluation. long term leasehold land and buildings are stated at valuation less accumulated amortisation or depreciation and impairment losses recognised after the date of the revaluation.
land and buildings are revalued periodically, at least once in every 5 years or earlier if circumstances indicate that the carrying amount may differ significantly from the market value.
Any revaluation surplus is recognised in other comprehensive income and accumulated in equity under the asset revaluation reserve, except to the extent that it reserves a revaluation decrease of the same asset previously recognised in the statement of other comprehensive income, in which case the increase is recognised in the statement of other comprehensive income. A revaluation deficit is recognised in the statement of other comprehensive income, except to the extent that it offsets an existing surplus on the same asset carried in the asset revaluation reserve.
the revaluation surplus included in the asset revaluation reserve in respect of an asset is transferred directly to retained earnings on retirement or disposal of the asset.
freehold land is not depreciated. Depreciation of other property, plant and equipment is calculated on the straight-line basis at the following annual rates based on their estimated useful lives:
long term leasehold land 2%
buildings 2%
plant and machinery 10%
furniture, fittings and office equipment 5% - 20%
Motor vehicles 20%
the carrying values of property, plant and equipment, are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable.
the residual values, useful life and depreciation method are reviewed at each financial year end, and adjusted prospectively, if appropriate.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on derecognition of the asset is included in the profit or loss in the year the asset is derecognised.
(f) Investment properties
investment properties are properties held either to earn rental income or for capital appreciation or for both.
investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value. Gains or losses arising from changes in the fair values of investment properties are recognised in profit or loss in the year in which they arise. the fair values are determined by external professional valuers with sufficient experience with respect to both the location and the nature of the investment property and supported by market evidence.
investment properties are derecognised when either they are disposed of or when they are permanently withdrawn from use and no future economic benefit is expected from the disposal. Any gain or loss on the retirement or disposal of an investment property is recognised in the profit or loss in the year of retirement or disposal.