Annual Report 2011 - Mandarin Oriental Hotel Group

38 Mandarin Oriental International Limited
Principal Accounting Policies Continued
J Stocks
Stocks, which principally comprise beverages and consumables, are stated at the lower of cost and net realizable value.
Cost is determined by the first-in, first-out method.
K Debtors
Debtors, excluding derivative financial instruments, are measured at amortized cost except where the effect of
discounting would be immaterial. Provision for impairment is established when there is objective evidence that the
outstanding amounts will not be collected. Significant financial difficulties of the debtor, probability that the debtor
will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators
that the debtor is impaired. The carrying amount of the asset is reduced through the use of an allowance account and
the amount of the loss is recognized in arriving at operating profit. When a debtor is uncollectible, it is written off
against the allowance account. Subsequent recoveries of amount previously written off are credited to profit and loss.
Debtors with maturities greater than twelve months after the balance sheet date are classified under non-current assets.
L Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise deposits with banks and financial
institutions and bank and cash balances, net of bank overdrafts. In the balance sheet, bank overdrafts are included
in current borrowings.
M Provisions
Provisions are recognized when the Group has present legal or constructive obligations as a result of past events, it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligations, and a
reliable estimate of the amount of the obligations can be made.
N Borrowings and borrowing costs
Borrowings are initially recognized at fair value, net of transaction costs incurred. In subsequent periods, borrowings
are stated at amortized cost using the effective interest method.
Borrowing costs relating to major development projects are capitalized until the asset is substantially completed.
Capitalized borrowing costs are included as part of the cost of the asset. All other borrowing costs are expensed
as incurred.
Borrowings are classified under non-current liabilities unless they are due to be settled within twelve months after
the balance sheet date.
O Government grants
Grants from governments are recognized at their fair value when there is reasonable assurance that the grant will be
received and the Group will comply with all attached conditions.
Grants relating to the development of hotel property are deducted in arriving at the carrying amount of the
hotel property.