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4 Critical accounting estimates, assumptions and
judgements
The preparation of this consolidated financial information
requires management to apply accounting
methods and policies that are based on difficult or subjective
judgements, estimates based on past experience
and assumptions determined to be reasonable and
realistic based on the related circumstances. The
application of these estimates and assumptions affects
the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the balance
sheet date and the reported amounts of income
and expenses during the reporting period. Actual results
may differ from these estimates given the uncertainty
surrounding the assumptions and conditions upon
which the estimates are based. Below are summarized
the Group’s accounting estimates that require the
most subjective judgement of management in making
assumptions or estimates regarding the effects of
matters that are inherently uncertain and for which
changes in conditions may significantly affect the
results reported in the financial statements.
Estimates and judgements are continually evaluated
and are based on historical experience and other
factors, including expectations of future events that are
believed to be reasonable under the circumstances.
Share-based compensation expense and cash-settled
share-based compensation
The Group has granted share options to some of its
employees, directors and consultants. The options
granted have different vesting, maturity and exercise
dates. Since there is no market for trading share options,
management must use a fair-value method to value
them. Fair-value methods require management to make
several assumptions, the most significant of which are
the selection of a fair-value model, share price volatility
and the average life of an option. The fair-value of each
of the share options has been determined separately
by an external appraiser using an enhanced binomial
model. Estimates have been based on Group history or
market data where appropriate. There is no certainty
that the results of a fair-value method would be the value
at which the share options would be traded for cash.
Should different assumptions be used, the expenditure
recognized could be different. Additional information
is reported at Note 2 “S Employee benefits”.
Cost accruals
The Group has numerous contracts with subcontractors
who carry out research and development activities.
The invoicing dates on these contracts do not
coincide with the financial year-end. Thus, management
has to exercise estimations as to the progress of work
done under the contracts and apportion the cost to the
different periods.
Capitalization of development costs
IAS 38 requires the capitalization of development costs
upon the completion of certain requirements about
commercial and technical feasibility of projects, the
availability of adequate funding resources and the
ability to measure costs reliably. All development costs
incurred till December 31, 2011, have been treated as
expenses as commercial and technical feasibility continues
to be assessed. There are no intangible assets
in relation to development expenditure.
Deferred tax assets and liabilities
Deferred tax assets are recognized to the extent that it is
probable that future taxable profit will be available
against which the temporary differences can be utilized.
In determining the recognition of deferred tax assets
and liabilities, the Group’s assessment of future tax able
income, available taxable temporary differences, tax
planning and applicable limitations on the use of taxloss
carry-forwards are factors taken into account.
The Group has incurred losses since inception and the
availability of future taxable profits against which
such an asset may be offset is uncertain. Accordingly,
no deferred tax assets have been recognized. Should
different events and assumptions be used, the deferred
tax assets recognized could be different.
Impairment of property, plant and equipment
The Group has incurred losses since inception, and
management considers this a sufficient indicator of the
necessity of annual impairment tests. As of the year
end, management assessed the fair values less costs to
Notes to the Consolidated Financial Statements – Newron Annual Report 2011 5 3