Annual Report 2010 - Leeden Limited

A Stronger Leeden in Asia.Notes to the Financial Statementsfor the Financial Year ended 31 December 20102. Summary of significant accounting policies (cont’d)2.16 StocksStocks are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in theordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.Costs incurred in bringing the inventories to their present location and condition are accounted for as follows:– Raw materials: purchase costs on a first-in-first-out basis– Finished goods and work-in-progress for manufactured products: costs of direct materials and labour and aproportion of manufacturing overheads based on normal operating capacity. These costs are assigned on a first-infirst-out basis.– Finished goods for trading products: Purchase costs on a weighted average basisWhere necessary, allowance is provided for damaged, obsolete and slow moving items to adjust the carrying value ofinventories to the lower of cost and net realisable value.2.17 Cash and cash equivalentsCash and cash equivalents comprise cash at bank and on hand and fixed deposits. These also include bank overdraftsthat form an integral part of the Group’s cash management.2.18 ProvisionsProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it isprobable that an outflow of economic resources will be required to settle the obligation and the amount of the obligationcan be estimated reliably.Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longerprobable that an outflow of economic resources will be required to settle the obligation, the provision is reversed. If theeffect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, whereappropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passageof time is recognised as a finance cost.2.19 Financial liabilitiesFinancial liabilities include trade creditors which are normally settled on 30-90 day terms, other creditors, amounts due torelated parties and interest-bearing loans and borrowings. Financial liabilities are recognised on the balance sheet when,and only when, the Group becomes a party to the contractual provisions of the financial instrument. The Group determinesthe classification of its financial liabilities at initial recognition.All financial liabilities are recognised initially at fair value plus, in the case of financial liabilities other than derivatives,directly attributable transaction costs.The measurement of financial liabilities depends on their classification as follows:Financial liabilities at fair value through profit or lossFinancial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial liabilitiesdesignated upon initial recognition as at fair value. Financial liabilities are classified as held for trading if they are acquiredfor the purpose of selling in the near term. This category includes derivative financial instruments entered into by theGroup that are not designated as hedging instruments in hedge relationships. Separated embedded derivatives are alsoclassified as held for trading unless they are designated as effective hedging instruments.Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value. Any gainsor losses arising from changes in fair value of the financial liabilities are recognised in profit or loss.The Group has not designated any financial liabilities upon initial recognition at fair value through profit or loss.58