Annual Report 2011/2012 - Colombo Stock Exchange

MERCANTILE SHIPPING COMPANY PLC
NOTES TO THE FINANCIAL STATEMENTS Contd...
Year ended 31 March 2012
20
The Group disposed its regional sea cargo vessels
“Mercs Ruhunu” and “Mercs Yala” on 27 February 2009
and 13 March 2009 respectively. As a result there are no
distinguishable components to be identified as a
segment as all operations are treated as one segment
(International Sea Cargo Operation).
2.3 SIGNIFICANT ACCOUNTING JUDGMENTS AND
ESTIMATES
Judgments:
In the process of applying the Group's accounting
policies, management has made the following
judgments, apart from those involving estimations,
which has the most significant effect on the amounts
recognized in the Financial Statements.
Deferred Tax Assets
Deferred tax assets are recognised for all unused tax
losses to the extent that it is probable that taxable profit
will be available against which the losses can be utilised.
Significant management judgment is required to
determine the amount of deferred tax assets that can be
recognised, based upon the likely timing and level of
future taxable profits together with future tax planning
strategies.
Owner Occupied Properties and Investment
Property
In determining if a property qualifies as an Investment
Property, the Group makes a judgment whether the
property generates independent cash flows rather than
cash flows that are attributable not only to the property
but also other assets. Judgment is also applied in
determining if ancillary services are significant, so that a
property does not qualify as investment property.
Functional Currency
The choice of the functional currency of the Companies
in the Group has been made based on factors such as
the primary economic environment in which the
Company operates, the currency that mainly influences
sales prices for services, costs of providing goods and
services and labor costs.
Estimates:
Estimation of Useful Life of Property, Plant and
Equipments
The charge in respect of periodic depreciation is derived
after determining an estimate of an asset's expected
useful life and the expected residual value at the end of
its life. The useful lives of Group assets are determined
by management at the time the asset is acquired and
reviewed annually for appropriateness. The lives are
based on historical experience with similar assets as well
as anticipation of future events.
Defined Benefit Plans
The cost of defined benefit plans – gratuity is determined
using the gratuity formula method. The gratuity formula
method involves making assumptions about discount
rates and future salary increases as disclosed in note
13.1 of these financial statements. Due to the long term
nature of these plans, such estimates are subject to
significant uncertainty.
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
2.4.1 Foreign Currency Translation
The Financial Statements are presented in Sri Lanka
Rupees, which is the functional and presentation
currency of the Group. Transactions in foreign
currencies are initially recorded at the functional
currency rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies are retranslated at the functional currency
rate of exchange ruling at the balance sheet date. All
differences are taken to profit or loss. Non-monetary
items that are measured in terms of historical cost in a
foreign currency are translated using the exchange rates
as 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.
Foreign Operations:
The balance sheet and income statement of Mercantile
Emerald Shipping (Pvt) Limited , which is deemed to
be a foreign operation are translated to Sri Lanka
Rupees at the rate of exchange prevailing as at the
balance sheet date and at the average annual rate of
exchange for the period respectively.
The exchange differences arising on the translation are
taken directly to a separate component of equity. On
disposal of a foreign entity, the deferred cumulative
amount recognized in equity relating to that the foreign
operation is recognized in the income statement.
2.4.2 Taxation
a) Current Taxes
Current income tax assets and liabilities for the current
and prior periods are measured at the amount expected
to be recovered from or paid to the taxation authorities.
The tax rates and tax laws used to compute the amount
are those that are enacted or substantively enacted by
the balance sheet date.
The provision for income tax is based on the elements of
income and expenditure as reported in the Financial
Statements and computed in accordance with the
provisions of the relevant tax legislations.