Annual Report 2011 - Colombo Stock Exchange

NOTES TO THE FINANCIAL STATEMENTSDepreciation of an asset begins when it is available for use and ceases at the earlier of thedates on which the asset is classified as held for sale or is derecognised.Depreciation methods, useful lives and residual values are reassessed at each reportingdate.3.1.2 InventoriesInventories are measured at the lower of cost and estimated net realisable value, aftermaking due allowances for obsolete and slow moving items. The cost of inventories isbased on the first-in-first out principle and includes expenditure incurred in acquiring theinventories, conversion costs and other costs in bringing them to their existing location andcondition.Net realisable value is the estimated selling price in the ordinary course ofbusiness, less the estimated costs of completion and selling expenses.3.1.3 Trade and other receivablesTrade receivables are stated at the amounts they are estimated to realize net of provisionsfor bad and doubtful debts.Other receivables are recognised at cost less provision for bad and doubtful debts.3.1.4 Cash and cash equivalentsCash and cash equivalents are defined as cash in hand, demand deposits and short-termhighly liquid investments, readily convertible to known amounts of cash and subject toinsignificant risk of changes in value.For the purpose of cash flow statement, cash and cash equivalents consist of cash in handand deposits in banks net of outstanding bank overdrafts.3.1.5 ImpairmentUNION CHEMICALS LANKA PLC2 0 1 1 - A N N U A L R E P O R TThe carrying amounts of the Company's non financial assets other than inventories anddeferred tax assets, are reviewed at each reporting date to determine whether there is anyindication of impairment. If any such indication exists, or when annual impairment testingfor an asset is required, then the asset's recoverable amount is estimated.The recoverable amount of an asset or cash-generating unit is the greater of its value in useand its fair value less costs to sell. In assessing value in use, the estimated future cash flowsare discounted to their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to the asset. Indetermining fair value, less costs to sell, an appropriate valuation model is used.An impairment loss is recognised if the carrying amount of an asset or its cash-generatingunit exceeds its recoverable amount. Impairment losses are recognised in profit and loss.27