r>
Improvements to premises 5 years or over terms of leases -
Plant and machinery 5 - 10 4%
Furniture, fixtures and equipment 5 - 10 4%
Motor vehicles 5 4%
Both the useful life of an asset and its residual value, if any, are reviewed annually.China Vanke Co., Ltd.
Financial statements for the period ended 30 June 2009
17
3 Significant accounting policies (continued)
(e) Investment properties
Investment properties are land and buildings which are owned or held under a leasehold
interest (see note 3(g)) to earn rental income and/or for capital appreciation. These include
land held for a currently undetermined future use and property that is being constructed or
developed for future use as investment property.
Investment properties are stated in the consolidated balance sheet at cost less accumulated
depreciation and impairment losses (see note 3(h)). The cost of self-constructed assets
includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs
of dismantling and removing the items and restoring the site on which they are located, and
an appropriate proportion of production overheads and borrowing costs (see note 3(m)).
Any gain or loss arising from the retirement or disposal of an investment property is
recognised in profit or loss. Rental income from investment property is accounted for as
described in note 3(l)(iii).
Depreciation is calculated to write off the cost of items of investment properties, less their
estimated residual value of 4% of costs, using straight line method over their estimated
useful lives of 12.5 to 40 years.
(f) Construction in progress
Construction in progress represents items of property, plant and equipment or investment
properties under construction and pending installation, and is stated at cost less impairment
losses (see note 3(h)). Cost comprises cost of materials, direct labour, borrowing costs
capitalized (see note 3(m)), and an appropriate proportion of production overheads incurred
during the periods of construction and installation. Capitalization of those costs ceases and
the construction in progress is transferred to property, plant and equipment or investment
properties, as appropriate, when the asset is substantially ready for its intended use. No
depreciation is provided in respect of construction in progress.China Vanke Co., Ltd.
Financial statements for the period ended 30 June 2009
18
3 Significant accounting policies (continued)
(g) Leased assets
An arrangement, comprising a transaction or a series of transactions, is or contains a lease if
the Group determines that the arrangement conveys a right to use a specific asset or assets
for an agreed period of time in return for a payment or a series of payments. Such a
determination is made based on an evaluation of the substance of the arrangement and is
regardless of whether the arrangement takes the legal form of a lease. Leases which do not
transfer substantially all the risks and rewards of ownership to the Group are classified as
operating leases.
Where the Group has the use of assets held under operating leases, payments made under the
leases are charged to profit or loss in equal instalments over the accounting periods covered
by the lease term, except where an alternative basis is more representative of the pattern of
benefits to be derived from the leased asset. Lease incentives received are recognised in
profit or loss as an integral part of the aggregate net lease payments made.
Contingent rentals are charged to profit or loss in the accounting period in which they are
incurred.
The cost of acquiring land held under an operating lease is amortised on a straight-line basis
over the period of the lease term except where the property is held for development, under
development or completed and held for sale (see notes 3(j) and 3(k)).
(h) Impairment of assets
(i) Impairment of investments in debt and equity securities and other receivables
Investments in debt and equity securities and other current and non-current receivables that
are stated at cost or amortised cost or are classified as available-for-sale securities are
reviewed at each balance sheet date to determine whether there is objective evidence of
impairment. Objective evidence of impairment includes observable data that comes to the
attention of the Group about one or more of the following loss events:
- significant financial difficulty of the debtor;
- a breach of contract, such as a default or delinquency in interest or principal
payments;
- it becoming probable that the debtor will enter bankruptcy or other financial
reorganisation;China Vanke Co., Ltd.
Financial statements for the period ended 30 June 2009
19
3 Significant accounting policies (continued)
(h) Impairment of assets (continued)
(i) Impairment of investments in debt and equity securities and other receivables (continued)
- significant changes in the technological, market, economic or legal environment that
have an adverse effect on the debtor; and
- a significant or prolonged decline in the fair value of an investment in an equity
instrument below its cost.
If any such evidence exists, any impairment loss is determined and recognised as follows:
- For investments in associates and jointly controlled entities recognised using the
equity method, the impairment loss is measure by comparing the recoverable amount
of the investment as a whole with its carrying amount in accordance with note
3(h)(ii). The impairment loss is reversed if there has been a favourable change in the
estimates used to determine the recoverable amount in accordance with note 3(h)(ii).
- For unquoted securities that are carried at cost, the impairment loss is measured as the
difference between the carrying amount of the financial asset and the estimated future
cash flows, discounted at the current market rate of return for a similar financial asset
where the effect of discounting is material. Impairment losses for securities are not
reversed.
- For trade and other current receivables and other financial assets carried at amortised
cost, the impairment loss is measured as the difference between the asset¡¯s carrying
amount and the present value of estimated future cash flows, discounted at the
financial asset¡¯s original effective interest rate (i.e. the effective interest rate
computed at initial recognition of these assets), where the effect of discounting is
material. This assessment is made collectively where financial assets carried at
amortised cost share similar risk characteristics, such as similar past due status, and
have not been individually assessed as impaired. Future cash flows for financial
assets which are assessed for impairment collectively are based on historical loss
experience for assets with credit risk characteristics similar to the collective group.
If in a subsequent period the amount of an impairment loss decreases and the decrease
can be linked objectively to an event occurring after the impairment loss was
recognised, the impairment loss is reversed through profit or loss. A reversal of an
impairment loss shall not result in the asset¡¯s carrying amount exceeding that which
would have been determined had no impairment loss been recognised in prior years.
- For available-for-sale securities, the cumulative loss that has been recognised directly
in equity is reclassified to profit or loss. The amount of the cumulative loss that is
recognised in profit or loss is the difference between the acquisition cost (net of any
principal repayment and amortisation) and current fair value, less any impairment loss
on that asset previously recognised in profit or loss.
Impairment losses recognised in profit or loss in respect of available-for-sale equity
securities are not reversed through profit or loss. Any subsequent increase in the fair
value of such assets is recognised directly in equity.China Vanke Co., Ltd.
Financial statements for the period ended 30 June 2009
20
3 Significant accounting policies (continued)
(h) Impairment of assets (continued)
(i) Impairment of investments in debt and equity securities and other receivables (continued)
Impairment losses in respect of available-for-sale debt securities are reversed if the
subsequent increase in fair value can be objectively related to an event occurring after the
impairment loss were recognised. Reversals of impairment losses in such circumstances are
recognised in profit or loss.
Impairment losses are written off against the corresponding assets directly, except for
impairment losses recognised in respect of trade debtors and bills receivable included within
trade and other receivables, whose recovery is considered doubtful but not remote. In this
case, the impairment losses for doubtful debts are recorded using an allowance account.
When the Group is satisfied that recovery is remote, the amount considered irrecoverable is
written off against trade debtors and bills receivable 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 off directly are recognised in profit or loss.
(ii) Impairment of other assets
Internal and external sources of information are reviewed at each balance sheet date to
identify indications that the following assets may be impaired or, except in the case of
goodwill, an impairment loss previously recognised no longer exists or may have decreased:
- investment properties;
- property, plant and equipment; and
- construction in progress.
If any such indication exists, the asset¡¯s recoverable amount is estimated. In addition, for
goodwill, the recoverable amount is estimated annually whether or not there is any indication
of impairment.
- Calculation of recoverable amount
The recoverable amount of an asset is the greater of its fair value less costs to sell and
value in use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current market
assessments of time value of money and the risks specific to the asset. Where an
asset does not generate cash inflows largely independent of those from other assets,
the recoverable amount is determined for the smallest group of assets that generates
cash inflows independently (i.e. a cash-generating unit).China Vanke Co., Ltd.
Financial statements for the period ended 30 June 2009
21
3 Significant accounting policies (continued)
(h) Impairment of assets (continued)
(ii) Impairment of other assets (continued)
- Recognition of impairment losses
An impairment loss is recognised in profit or loss whenever the carrying amount of an
asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount.
Impairment losses recognised in respect of cash-generating units are allocated first to
reduce the carrying amount of any goodwill allocated to the cash-generating unit (or
group of units) and then, to reduce the carrying amount of the other assets in the unit
(or group of units) on a pro rata basis, except that the carrying value of an asset will
not be reduced below its individual fair value less costs to sell, or value in use, if
determinable.
- Reversals of impairment losses
In respect of assets other than goodwill, an impairment loss is reversed if there has
been a favourable change in the estimates used to determine the recoverable amount.
An impairment loss in respect of goodwill is not reversed.
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 profit or loss in the year in which the
reversals are recognised.
(i) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is calculated using
the weighted average cost formula and comprises all costs of purchase, costs of conversion
and other costs 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 the
estimated costs of completion and the estimated costs necessary to make the sale.
When inventories are sold, the carrying amount of those inventories is recognised as an
expense in the period in which the related revenue is recognised. The amount of any writedown
of inventories to net realisable value and all losses of inventories are recognised as an
expense in the period the write-down or loss occurs. The amount of any reversal of any
write-down of inventories is recognised as a reduction in the amount of inventori