Annual Report 2012 - Haitian International Holdings Ltd.

Notes to the Consolidated Financial Statements (Continued)
(All amounts in RMB unless otherwise stated)
4. Critical Accounting Estimates and Judgements (Continued)
(c) Impairment of receivables
The Group’s management determines the provision for impairment of trade, bills and other receivables based on an
assessment of the recoverability of the receivables. This assessment is based on the credit history of its customers and
other debtors and the current market condition, and requires the use of judgements and estimates. Management
reassesses the provisions at each balance sheet date.
(d) Net realisable value of inventories
Net realisable value of inventory is the estimated selling price in the ordinary course of business, less estimated costs of
completion and selling expense. These estimates are based on the current market condition and the historical experience
of manufacturing and selling products of similar nature. It could change significantly as a result of technical innovations
and competitor actions in response to severe industry cycle. Management reassesses these estimates at each balance
sheet date.
(e) Current income tax and deferred income tax
The Group is subject to income tax in the jurisdictions where the Group has operations other than the Cayman Islands
and the British Virgin Islands. There are certain transactions and calculations for which the ultimate tax determination
is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the
amounts that were initially recorded, such differences will impact the current income tax and deferred tax provisions in
the period in which such determination is made.
Deferred income tax assets relating to certain temporary differences and tax losses are recognised when management
considers that it is likely that future taxable profits will be available against which the temporary differences or tax losses
can be utilised. Deferred income tax liabilities relating to undistributed profits of subsidiaries incorporated in Mainland
China are recognised when management expects to recover investments in those subsidiaries through dividends, unless
it is estimated that such dividends will not be distributed in the foreseeable future. When the expectations are different
from the original estimates, such differences will impact the recognition of deferred tax assets and deferred tax liabilities
and income tax charges in the period in which such estimates are changed.
(f) Provision for loss on guarantees
The Group provides guarantees for loans granted by PRC banks to some of the Group’s end-user customers in
connection with their purchases of the Group’s products. If an end-user customer default on a loan, the Group is
obliged to settle the remaining loan balances. The Group’s management determines the provision for loss on the
guarantees based on assessment of the possibility of default payments by individual end-user customers. This assessment
is based on the credit history of its customers, the current market condition and requires the use of judgements and
estimates. Management reassesses the provisions at each balance sheet date. Different estimates could significantly
affect the provision amounts and materially impact the results of operations.
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