Annual Report 2010 - Leeden Limited

A Stronger Leeden in Asia.Notes to the Financial Statementsfor the Financial Year ended 31 December 20103. Significant accounting judgements and estimatesThe preparation of the Group’s financial statement requires management to make judgements, estimates and assumptionsthat affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilitiesat the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that couldrequire a material adjustment to the carrying amount of the asset or liability affected in the future.3.1 Key sources of estimation uncertaintyThe key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, thathave a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the nextfinancial year are discussed below.(i)Useful lives of property, plant and equipmentThe cost of property, plant and equipment for welding and other industrial applications, as well as for propertydevelopment and investment, is depreciated on a straight-line basis over the assets’ estimated economic usefullives. Management estimates the useful lives of these property, plant and equipment to be within 6 months to 73.5years. These are common life expectancies applied in the relevant industry. The carrying amount of the Group’sproperty, plant and equipment at 31 December 2010 was $68,051,000 (2009: $59,217,000). Changes in theexpected level of usage and technological developments could impact the economic useful lives and the residualvalues of these assets, therefore future depreciation charges could be revised.(ii)Impairment of non-financial assetsThe Group assesses whether there are any indicators of impairment for all non-financial assets at each reportingdate. Goodwill and other indefinite life intangibles are tested for impairment annually and at other times whensuch indicators exist. Other than intangibles, stocks are valued at the lower of cost and net realisable value. Netrealisable value is the estimated selling price in the ordinary course of business less estimated costs necessaryto make the sale. Other non-financial assets are tested for impairment when there are indicators that the carryingamounts may not be recoverable.When value in use calculations are undertaken, management must estimate the expected future cash flows fromthe asset or cash-generating unit and choose a suitable discount rate in order to calculate the present valueof those cash flows. Further details of the key assumptions are given in the respective notes to the financialstatements.(iii)Allowance for stock obsolescenceAllowance for stock obsolescence is estimated based on the best available facts and circumstances, including butnot limited to the stocks’ own physical conditions, their market selling prices and estimated costs to be incurredfor their sales. The allowances are re-evaluated and adjusted as additional information received affects the amountestimated. The carrying amount of the Company’s stocks as of 31 December 2010 was $43,038,000 (2009:$38,708,000).(iv)Impairment of loans and receivablesThe Group assesses at each balance sheet date whether there is any objective evidence that a financial assetis impaired. To determine whether there is objective evidence of impairment, the Group considers factors suchas the probability of insolvency or significant financial difficulties of the debtor and default or significant delay inpayments.Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated basedon historical loss experience for assets with similar credit risk characteristics.The carrying amount of the Group’s loans and receivables at the balance sheet date is disclosed in Note 38 to thefinancial statements.64