Annual Report 2011/2012 - Colombo Stock Exchange

ANNUAL REPORT 2011 / 12
NOTES TO THE FINANCIAL STATEMENTS Contd...
Year ended 31 March 2012
Pursuant to an agreement dated 09 November 2007
entered into with Board of Investment of Sri Lanka under
Section 17 of the Board of Investment Law, Mercantile
Emerald Shipping (Private) Limited's income from the
business of international sea cargo operation is
exempted, for a period of 5 years from the year in which
the enterprise commences to make profits or any year of
assessment not later than 2 years reckoned from the date
of commercial operation whichever is earlier as may be
specified in a certificate issued by the Board.
b) Deferred Taxation
Deferred income tax is provided, using the liability
method, on temporary differences at the balance sheet
date between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognised for all
taxable temporary differences except where the deferred
income tax liability arises from the initial recognition of an
asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss.
Deferred income tax assets are recognised for all
deductible temporary differences, carry-forward of
unused tax assets and unused tax losses, to the extent
that it is probable that taxable profit will be available
against which the deductible temporary differences and
the carry-forward of unused tax assets and unused tax
losses can be utilised except where the deferred income
tax asset relating to the deductible temporary difference
arises from the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the
time of the transaction, affects neither the accounting
profit nor taxable profit or loss.
The carrying amount of deferred income tax assets is
reviewed at each balance sheet date and reduced to the
extent that it is no longer probable that sufficient taxable
profit will be available to allow all or part of the deferred
income tax asset to be utilised.
Deferred income tax assets and liabilities are measured
at the tax rates that are expected to apply to the year
when the asset is realised or the liability is settled, based
on tax rates (and tax laws) that have been enacted or
substantively enacted at the balance sheet date.
Deferred income tax assets and deferred income tax
liabilities are offset if a legally enforceable right exists to
set off current income tax assets against current income
tax liabilities and the deferred income taxes relates to the
same entity and same taxation authority.
c) Sales Tax- Value Added Tax
Revenues, expenses and assets are recognised net of
the amount of sales tax except where the sales tax
incurred on a purchase of assets or service is not
recoverable from the taxation authorities in which case
the sales tax is recognised as a part of the cost of the
asset or part of the expense items as applicable and
receivable and payable that are stated with the amount
of sales tax included. The amount of sales tax
recoverable and payable in respect of taxation
authorities is included as a part of receivables and
payables in the Balance Sheet.
d) Economic Service Charge (ESC)
ESC is payable on the liable turnover at specified rates.
As per the provision of the Economic Service Charge Act
No. 13 of 2006 and subsequent amendments thereto,
ESC is deductible from the income tax liability. Any
unclaimed liability can be carried forward and set off
against the income tax payable as per the relevant
provision in the Act.
2.4.3 Borrowing Costs
Borrowing costs are recognized as an expense in the
period in which they are incurred, except to the extent
where borrowing costs that are directly attributable to
the acquisition, construction, or production of an asset
that takes a substantial period of time to get ready for its
intended use or sale, are capitalized as part of that asset.
2.4.4 Inventories
Inventories are valued at the lower of cost and net
realizable value, after making due allowances for
obsolete and slow moving items. Net realizable value is
the price at which inventories can be sold in the ordinary
course of business less the estimated cost of completion
and the estimated cost necessary to make the sale.
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