0175 Geely Automobile Holdings Limited Annual Report 2011

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Annual Report 2011Geely Automobile Holdings LimitedNOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTSFor the year ended 31 December 20115. Significant Accounting Policies (Continued)(g)Financial instruments (Continued)Convertible bondsIssue costs are apportioned between the liability component and the conversion option derivative of theconvertible bonds based on their relative fair value at the date of issue. The portion relating to the conversionoption derivative is charged directly to the consolidated income statement and the remaining portion isdeducted from the liability component.A conversion option that will be settled by the exchange of a fixed amount of cash or another financial assetfor a fixed number of the Company’s own equity instruments is an equity component. A convertible bondwhich included such an equity component is classified as a compound instrument. On initial recognition,the fair value of the liability component is determined using the prevailing market interest rate of similarnon-convertible debt. The difference between the gross proceeds of the issue of the convertible bondsand the fair value assigned to the liability component, representing the conversion option for the holder toconvert the bonds into equity, is included in equity (convertible bonds reserve).The liability component is subsequently measured at amortised cost, using the effective interest method.The interest charged on the liability component is calculated by applying the original effective interest rate.The difference between this amount and the interest paid (if any) is added to the carrying amount of theliability component. In the case that the conversion options are not settled by the exchange of a fixedamount for fixed number of equity instrument, the embedded derivatives are subsequently measured attheir fair values at each balance sheet date with changes in fair value recognised in consolidated incomestatement.Equity instrumentsAn equity instrument is any contract that evidences a residual interest in the assets of the Group afterdeducting all of its liabilities.Equity instruments issued by the Company are recorded at the proceeds received, net of direct issuecosts.DerecognitionFinancial assets are derecognised when the rights to receive cash flows from the assets expire or, thefinancial assets are transferred and the Group has transferred substantially all the risks and rewards ofownership of the financial assets. On derecognition of a financial asset, the difference between the asset’scarrying amount and the sum of the consideration received and the cumulative gain or loss that had beenrecognised directly in equity, if any, is recognised in the consolidated income statement.For financial liabilities, they are derecognised from the Group’s balance sheet when the obligation specifiedin the relevant contract is discharged, cancelled or expires. The difference between the carrying amount ofthe financial liability derecognised and the consideration paid or payable is recognised in the consolidatedincome statement.73
Annual Report 2011Geely Automobile Holdings LimitedNOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTSFor the year ended 31 December 20115. Significant Accounting Policies (Continued)(h)Property, plant and equipmentProperty, plant and equipment, other than freehold land and construction in progress, are stated at costless subsequent accumulated depreciation and accumulated impairment loss.Depreciation is provided to write off the cost of items of property, plant and equipment (other than freeholdland and construction in progress) over their estimated useful lives and after taking into account theirestimated residual values, using the straight-line method.An item of property, plant and equipment is derecognised upon disposal or when no future economic benefitsare expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of theasset (calculated as the difference between the net disposal proceeds and the carrying amount of the item)is included in the consolidated income statement in the year in which the item is derecognised.Property, plant and equipment, other than freehold land and construction in progress, are depreciated ona straight-line basis at the following useful lives:Leasehold buildingsBuildings on freehold landPlant and machineryLeasehold improvementsFurniture and fixtures, office equipment and motor vehicles30 years10 to 30 years7 to 10 yearsOver the shorter of thelease terms and 3 years5 to 10 yearsConstruction in progress is stated at cost less accumulated impairment losses. Cost includes all constructionexpenditure and other direct costs, including interest costs, attributable to such projects. Costs on completedconstruction works are transferred to the appropriate asset category. No depreciation is provided in respectof construction in progress until it is completed and available for use.Freehold land is stated at cost less accumulated impairment losses.(i)ImpairmentAt each balance sheet date, the Group reviews the carrying amounts of its assets to determine whetherthere is any indication that those assets have suffered an impairment loss. If the recoverable amount of anasset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to itsrecoverable amount. The resulting impairment loss is recognised as an expense immediately. The recoverableamount of an asset is the greater of its fair value less costs to sell and value in use. In assessing value inuse, the estimated future cash flows are discounted to their present value using a pre-tax discount rate thatreflects current market assessments of the time value of money and the risks specific to the asset. Wherean asset does not generate cash inflows largely independent of those from other assets, the recoverableamount is determined for the smallest group of assets that generates cash inflows independently (i.e. acash-generating unit).Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to therevised estimate of its recoverable amount, but so that the increased carrying amount does not exceedthe carrying amount that would have been determined had no impairment loss been recognised for theasset in prior years. A reversal of an impairment loss is recognised as income immediately.74
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0175 Geely Automobile Holdings Limited Annual Report 2011

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