Annual Report 2010-2011 - Colombo Stock Exchange

Notes to the Financial Statements Contd.
All associates are incorporated in Sri Lanka.
The investments in associates are carried in the Balance Sheet
at cost plus post acquisition changes in the group’s share of
net assets of the associates. Goodwill relating to an associate
is included in the carrying amount of the investment. After
application of the equity method, the group determines whether
it is necessary to recognize any additional impairment loss
with respect to the group’s net investment in the associate. The
Income Statement reflects the share of the results of operations
of the associate. Where there has been a change recognized
directly in the equity of the associate, the group recognizes its
share of any changes in the Statement of Changes in Equity.
When the group’s share of losses in an associate equals or
exceeds the interest in the undertaking, the group does not
recognize further losses unless it has incurred obligations or
made payments on behalf of the entity.
The group ceases to use the equity method of accounting on
the date from which it no longer has significant influence in the
associate.
The accounting policies of associate companies conform to
those used for similar transactions of the group. Accounting
policies that are specific to the business of associate
companies are discussed in note 2.7.
1.2.5 Goodwill
Goodwill acquired in a business combination is initially
measured at cost being the excess of the cost of the business
combination over the group’s interest in the net fair value of
the identifiable assets, liabilities and contingent liabilities.
Following initial recognition, goodwill is measured at cost less
any accumulated impairment losses. Goodwill is reviewed for
impairment, annually or more frequently if events or changes in
circumstances indicate that the carrying value may be impaired.
For the purpose of impairment testing, goodwill acquired in a
business combination is, from the acquisition date, allocated
to groups of cash-generating units that are expected to benefit
from the synergies of the combination.
Impairment is determined by assessing the recoverable amount
of the cash-generating unit to which goodwill relates. Where
the recoverable amount of the cash generating unit is less than
the carrying amount, an impairment loss is recognized. The
impairment loss is allocated first to reduce the carrying amount
of any goodwill allocated to the unit and then to the other
assets pro-rata to the carrying amount of each asset in the unit.
Goodwill and fair value adjustments arising on the acquisition
of a foreign operation are treated as assets and liabilities of the
foreign operation and translated at the closing rate.
Where goodwill forms part of a cash-generating unit and part
of the operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in the
carrying amount of the operation when determining the gain or
loss on disposal of the operation.
1.2.6 Financial year
Results of all subsidiaries and associates (except for Asian
Alliance Insurance PLC) are drawn for the twelve months
period up to 31st March, which is their year end.
The results of Asian Alliance Insurance PLC is drawn for the
twelve month period up to 31st December, which is their year
end.
2.1 SIGNIFICANT ACCOUNTING JUDGMENTS,
ESTIMATES AND ASSUMPTIONS
2.1.1 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.
Going Concern
When preparing financial statements, management has made
assessment of the ability of the constituents of the Group to
continue as a going concern, taking into account all available
information about the future, including intentions of curtailment
of businesses, as decided by the Board, as disclosed in Note
28 to the Financial Statements.
Deferred tax assets
Deferred tax assets are recognized for all unused tax losses
to the extent that it is probable that taxable profit will be
available against which the losses can be utilized. Significant
management judgment is required to determine the amount
of deferred tax assets that can be recognized, based upon
the likely timing and level of future taxable profits together with
future tax planning strategies. Further details are given in Note
16.
Allowance for doubtful debts
The Group reviews at each balance sheet date all receivables
to assess whether an allowance should be recorded in
the Income Statement. The management uses judgment
in estimating such amounts in the light of the duration of,
outstanding and any other factors management is aware of that
indicates uncertainty in recovery.
2.1.2 Estimates and assumptions
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 material adjustments to
the carrying amounts of assets and liabilities within the next
Richard Pieris and Company PLC | Annual Report 2010/2011 68