Annual Report 2012 - ecoWise Holdings Limited

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80ecoWise Holdings Limitedannual report 201231 OCTOBER 2012NOTES TO THE FINANCIAL STATEMENTS2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)Government GrantsA government grant is recognised at fair value when there is reasonable assurance that the conditionsattaching to it will be complied with and that the grant will be received. A grant in recognition of specificexpenses is recognised as income in profit or loss over the periods necessary to match them with therelated costs that they are intended to compensate, on a systematic basis. A grant related to depreciableassets is allocated to income over the periods in which such assets are used in the project subsidised bythe grant. A government grant related to assets, including non-monetary grants at fair value, is presentedin the statement of financial position as deferred income.Critical Judgements, Assumptions and Estimation UncertaintiesThe critical judgements made in the process of applying the accounting policies that have the most significanteffect on the amounts recognised in the financial statements and the key assumptions concerning the future,and other key sources of estimation uncertainty at the end of the reporting year, that have a significant riskof causing a material adjustment to the carrying amounts of assets and liabilities currently or within the nextreporting year are discussed below.These estimates and assumptions are periodically monitored to ensure they incorporate all relevantinformation available at the date when financial statements are prepared. However, actual figures may differfrom these estimates.Impairment of Property, Plant and EquipmentAn assessment is made at the end of each reporting year whether there is any indication that the assets maybe impaired. If any such indication exists, an estimate is made of the recoverable amounts of the assets.The recoverable amounts of cash-generating units have been determined based on value in use calculations.These calculations require the use of estimates.Included in the property, plant and equipment of the Group is a coal-fired power plant with carrying amountof $6,514,000 as at 31 October 2012 (2011: $7,008,000) of a non-wholly owned subsidiary, WuhanecoWise Energy Co., Ltd.. This plant will be converted to a biomass co-generation plant. The coal-firedpower plant has ceased operations and the commencement of plant conversion is subject to the subsidiaryreceiving additional capital injection from its shareholders for purposes of securing the bank financing for theconversion. As at 31 October 2012, the Group has assessed the recoverable amount of the plant based onits estimated value in use assuming the operation of a biomass co-generation plant, using a pre-tax discountvalue of 12.8%. Based on management’s review, there is no impairment loss.
ecoWise Holdings Limitedannual report 20128131 OCTOBER 2012NOTES TO THE FINANCIAL STATEMENTS2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)Critical Judgements, Assumptions and Estimation Uncertainties (Continued)Impairment of Property, Plant and Equipment (Continued)It is impracticable to disclose the extent of the possible effects. It is reasonably possible, based on existingknowledge, that outcomes within the next reporting year that are different from assumptions could requirea material adjustment to the carrying amount of the balances affected.Useful Lives of Property, Plant and EquipmentThe estimates for the useful lives and related depreciation charges for property, plant and equipment is basedon commercial and production factors which could change significantly as a result of technical innovationsand competitors’ actions in response to severe market conditions. When useful lives are less than previouslyestimated useful lives, depreciation charges are increased or the carrying amounts written-off or written-downfor technically obsolete or non-strategic assets that have been abandoned. It is impracticable to disclosethe extent of the possible effects. It is reasonably possible, based on existing knowledge, that outcomeswithin the next reporting year that are different from assumptions could require adjustments to the carryingamounts of the property, plant and equipment (Note 14).Impairment of Subsidiaries and AssociatesWhen a subsidiary or associate is in net equity deficit and has suffered operating losses, the recoverableamount of the investee is estimated to assess whether the investment in the investee has suffered anyimpairment. This determination requires significant judgement. An estimate is made of the future profitabilityof the investee, and the financial health of and near-term business outlook for the investee, including factorssuch as industry and sector performance and operational and financing cash flows. It is impracticable todisclose the extent of the possible effects. It is reasonably possible, based on existing knowledge, thatoutcomes within the next reporting year that are different from assumptions could require adjustments tothe carrying amounts of the investments in subsidiaries and associates.The specific assets at the end of the reporting year affected by the assumptions, which have carrying amountsof $1,450,000 (2011: $1,450,000) have been fully impaired.
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