Annual report for 2004/05 - Hemas Holdings, Ltd

Notes to the Financial StatementsYear ended 31 March 2005assets of a subsidiary, associate or joint venture as at thedate of acquisition.Negative GoodwillNegative goodwill arising on acquisition comprises theexcess of the fair value of net identifiable assets acquiredover the purchase price or cost of acquisition.Acquired goodwill is recognized as an intangible asset andnegative goodwill as deferred income in the consolidatedfinancial statements and stated at cost less accumulatedamortization.Any acquired goodwill, including negative goodwill isamortized over 5 years on a straight line basis from the dateof initial recognition.(e) Changes in Group CompaniesHemas Garments (Pte) Limited a subsidiary, (70% controllinginterest) was disposed on 31st March 2005 and Exchange &Finance Investment Limited was acquired as a subsidiary(56% controlling interest) and the controlling interest inPeace Haven Resorts Limited was increased to 88% from71%.(f) Financial YearAll Companies in the Group have a common financial yearthat ends on 31st March .(g) Country of IncorporationAll subsidiaries and the associate companies areincorporated in Sri Lanka.2.1.3 Comparative InformationThe accounting policies have been consistently applied bythe Company and are consistent with those used in theprevious year. The previous years’ figures and phrases havebeen rearranged wherever necessary to conform to thecurrent presentation.2.1.4 Foreign Currency TranslationAll foreign exchange transactions are converted to Sri LankaRupees, which is the reporting currency, at the rates ofexchange prevailing at the time the transactions wereeffected. Monetary assets and liabilities denominated inforeign currencies are translated to Sri Lanka Rupeeequivalents using year-end spot foreign exchange rates.Non- monetary assets and liabilities are translated usingexchange rates that existed when the values weredetermined. The resulting gains and losses are accounted forin the Income Statement.2.1.5 Taxationa) Current TaxesThe provision for income tax is based on the elements ofincome and expenditure as reported in the financialstatements and computed in accordance with the provisionsof the Inland Revenue Act.Trading income of Serendib Hotels Ltd., Hotel Sigiriya Ltd.,Stafford Hotels Ltd., Miami Beach Hotels Ltd., SerendibLeisure Management Ltd., Hemas Travels (Pte) Ltd. andHemtours (Pte) Ltd., is taxed at 15%, other income of theseCompanies are taxed at 30%.The profits of Hemas Garments (Pte) Ltd., are exempt fromIncome Tax under BOI Act No. 4 of 1978 for a period of 15years reckoned from the year of assessment 1996/1997 inwhich the Company commences to make profits in relationto its transactions in that year of assessment not later than5 years from the date of first commercial production oroperation of the enterprise which occurs earlier. On theexpiration of the above tax exemption period the provisionof section 85 A of the Inland Revenue Act No. 38 of 2000shall apply to the company.Hemas Developments (Pte) Ltd., has obtained BOI approvalunder Section 17 and it enjoys a 7 year tax holidaycommencing from the year of assessment 1998/1999 inwhich the enterprise makes profits in relation to itstransactions in that year or not later than 5 years from thedate of its first commercial operation whichever is earlier.b) Deferred TaxationDeferred taxation is provided on the liability method. Thetax effect of all timing differences which occur where itemsare allowed for income tax purposes in a period differentfrom that when they are recognised in financial statementsis included in the provision for deferred taxation at rates oftaxation, which would prevail at the time the differencereverses.Deferred tax assets are recognised for all deductible timingdifferences and carry forward of unused tax losses, to theextent that it is probable that taxable profit will be availableagainst which the deductible timing differences and carryforward of unused tax losses can be utilized. The carryingamount of deferred tax assets is reviewed at each balancesheet date and reduced to the extent that it is no longerprobable that sufficient taxable profit will be available toallow all or part of the deferred tax asset to be utilized.2.1.6 Borrowing CostsBorrowing costs are recognised as an expense in the periodin which they are incurred, unless they are incurred inrespect of qualifying assets in which case it is capitalized aspart of that asset.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 41