Annual Report 2012 - TodayIR.com

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Lonking Holdings Limited Annual Report 2012 Notes to the Consolidated Financial Statements For the year ended 31 December 2012 3. SIGNIFICANT ACCOUNTING ESTIMATES (Continued) Estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. Current income tax The Group is subject to income taxes in numerous jurisdictions in the PRC. As a result of the fact that certain matters relating to the income taxes have not been confirmed by the local taxation authorities, objective estimates and judgements based on currently enacted tax laws, regulations and other related policies are required in determining the provision of corporate income taxes. Where the final tax outcome of these matters is different from the amounts originally recorded, the differences will impact the corporate income tax and tax provisions in the period in which the differences are realised. Impairment of non-financial assets (other than goodwill) The Group assesses whether there are any indicators of impairment for all non-financial assets at the end of each reporting period. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset or a cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The calculation of the fair value less costs to sell is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows. Deferred tax assets Deferred tax assets are recognised for 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 judgement 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. The carrying value of deferred tax assets relating to recognised tax losses at 31 December 2012 was RMB37,258,000 (2011: RMB8,373,000). The amount of unrecognised tax losses at 31 December 2012 was RMB47,646,000 (2011: RMB69,364,000). Further details are contained in note 30 to the financial statements. 69
Lonking Holdings Limited Annual Report 2012 Notes to the Consolidated Financial Statements For the year ended 31 December 2012 3. SIGNIFICANT ACCOUNTING ESTIMATES (Continued) Estimation uncertainty (Continued) Deferred tax liabilities Deferred tax liabilities are recognised for withholding corporate income taxes relating to the unremitted earnings of the Group’s subsidiaries established in Mainland China that are subject to withholding taxes. Significant management judgement is required to determine the amount of deferred tax liabilities, based upon the likely distribution level of such earnings from these subsidiaries in the foreseeable future. The carrying value of deferred tax liabilities arising from the withholding tax associated with the investments in subsidiaries in Mainland China for the year ended 31 December 2012 was RMB75,723,000 (31 December 2011: RMB69,046,000). Further details are contained in note 30 to the financial statements. Impairment of trade and bills receivables, and finance lease receivables The Group maintains an allowance for estimated loss arising from the inability of its customers to make the required payments. The Group makes its estimates based on the ageing of its receivable balances, customers’ creditworthiness, and historical write-off experience. If the financial condition of its customers deteriorates such that the actual impairment loss might be higher than expected, the Group would be required to revise the basis for making the allowance and its future results would be affected. Net realisable value of inventories Net realisable value of an inventory is the estimated selling price in the ordinary course of business, less estimated costs to be incurred to completion and disposal. These estimates are based on the current market condition and the historical experience of selling products of similar nature which could change significantly as a result of changes in customer taste or competitor actions in response to severe consumer product industry cycles. Management reassesses these estimates at each reporting date. Provision for warranty costs 70 As explained in note 29, the Group offers 18 months’ warranty for the excavators and 12 months’ warranty for the wheel loaders, road rollers, forklifts, during which free warranty service for the repair and maintenance of parts and components under normal usage is provided to the customers. The provision for warranty costs is based on the historical experience and statistics. As at 31 December 2012, the carrying amount of provision for warranty costs was RMB130,702,000 (31 December 2011: RMB175,743,000).
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