2006 - TCL Communication Technology Holdings Limited

TCL COMMUNICATION TECHNOLOGY HOLDINGS LIMITED
Notes to Financial Statements
31 December 2006
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currencies
These financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation
currency. Each entity in the Group determines its own functional currency and items included in the financial
statements of each entity are measured using that functional currency. Foreign currency transactions are initially
recorded using the functional currency rates ruling at the date of the transactions. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the balance
sheet date. All differences are taken to the income statement. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date
when the fair value was determined.
The functional currencies of certain overseas subsidiaries are currencies other than the Hong Kong dollar. As at the
balance sheet date, the assets and liabilities of these entities are translated into the presentation currency of the
Company at the exchange rates ruling at the balance sheet date, and their income statements are translated into
Hong Kong dollars at the weighted average exchange rates for the year. The resulting exchange differences are
included in a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount
recognised in equity relating to that particular foreign operation is recognised in the income statement.
For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries are translated into
Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of
overseas subsidiaries, which arise throughout the year are translated into Hong Kong dollars at the weighted
average exchange rates for the year.
6. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
Estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet
date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year, are disclosed below:
Impairment of property, plant and equipment
The Group determines whether property, plant and equipment are impaired when there is an indication of
impairment. This requires an estimation of the value in use of the cash-generating units to which the property, plant
and equipment were allocated. Estimating the value in use requires the Group to make an estimate of the expected
future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the
present value of those cash flows. The carrying amount of property, plant and equipment was approximately
HK$262,495,000 (2005: HK$360,149,000). More details are set out in note 16.
Management carries out the impairment review on property, plant and equipment by comparing the lower of
carrying amount and recoverable amount of property, plant and equipment.
An impairment loss is recognised when the carrying amount of property, plant and equipment exceeds the recoverable
amount. An impairment loss is charged to the income statement in the period in which it arises. Management
assesses the recoverable amount by the higher of the fair value less costs to sell and the expected value in use
which is determined by the expected useful life and the expected discounted net cashflow of property, plant and
equipment.
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Annual Report 2006