SEC Form 17-A: Annual Report - the solid group inc website

- 28 -
3.1 Critical Management Judgments in Applying Accounting Policies
In the process of applying the Group’s accounting policies, management has made the
following judgments, apart from those involving estimation, which have the most
significant effect on the amounts recognized in the consolidated financial statements:
(a)
Impairment of AFS Financial Assets
The determination when an investment is other-than-temporarily impaired
requires significant judgment. In making this judgment, the Group evaluates,
among other factors, the duration and extent to which the fair value of an
investment is less than its cost, and the financial health of and near-term business
outlook for the investee, including factors such as industry and sector
performance, changes in technology and operational and financing cash flows.
Based on the recent evaluation of information and circumstances affecting the
Group’s AFS financial assets, management concluded that certain assets were
impaired as of December 31, 2012 and 2011. Future changes in those
information and circumstance might significantly affect the carrying amount of
the assets.
Impairment losses recognized on AFS financial assets are disclosed in Note 9.
(b)
Determining Net Realizable Value of Real Estate Inventories
The Group adjusts the cost of its real estate inventories to net realizable value
based on its assessment of the recoverability of the inventories. Net realizable
value for completed real estate inventories is assessed with reference to market
conditions and prices existing at the reporting date and is determined by the
Group in the light of recent market transactions. Net realizable value in respect
of real estate inventories under construction is assessed with reference to market
prices at the reporting date for similar completed property, less estimated costs to
complete construction and less estimated costs to sell. The amount and timing of
recorded expenses for any period would differ if different judgments were made
or different estimates were utilized.
The carrying amounts of the real estate inventories is disclosed in Note 11.
(c)
Costing of Merchandise Inventories and Supplies
The Group’s inventory costing policies and procedures were based on a careful
evaluation of present circumstances and facts affecting production operations. A
review of the benchmarks set by management necessary for the determination of
inventory costs and allocation is performed regularly. Actual data are compared
to the related benchmarks and critical judgment is exercised to assess the
reasonableness of the costing policies and procedures which are currently in place
and to make the necessary revisions in light of current conditions.