0175 Geely Automobile Holdings Limited Annual Report 2011

Annual Report 2011Geely Automobile Holdings LimitedNOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTSFor the year ended 31 December 20116. Critical Accounting Judgements and Key Sources of Estimation Uncertainty(Continued)Key sources of estimation uncertainty (Continued)Impairment of long lived assetsIf circumstances indicate that the net book value of a long lived asset may not be recoverable, the asset maybe considered “impaired” and an impairment loss may be recognised in accordance with HKAS 36 “Impairmentof Assets”. The carrying amounts of long lived assets are reviewed periodically in order to assess whether therecoverable amounts have declined below the carrying amounts. These assets are tested for impairment wheneverevents or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. Whensuch a decline has occurred, the carrying amount is reduced to the recoverable amount. The recoverable amountis the greater of the net selling price and the value in use. It is difficult to precisely estimate selling prices becausequoted market prices for the Group’s assets are not readily available. In determining the value in use, expectedcash flows generated by the asset are discounted to their present value, which requires significant estimationrelating to the level of sales volume, selling prices and the amount of operating costs. The Group uses all readilyavailable information in determining an amount that is a reasonable approximation of recoverable amount, includingestimates based on reasonable and supportable assumptions and projections of sales volume, selling prices andthe amount of operating costs.Depreciation and amortisationProperty, plant and equipment and intangible assets with finite useful lives are depreciated or amortised on astraight-line basis over the estimated useful lives of the assets, after taking into account the estimated residualvalue, if any. The Group reviews the estimated useful lives of the assets regularly in order to determine the amountof depreciation and amortisation expense to be recorded during any reporting period. The useful lives are basedon the Group’s historical experience with similar assets and taking into account anticipated technological changes.The depreciation and amortisation expense for future periods is adjusted if there are significant changes fromprevious estimates.Impairment of investmentsThe Company assesses annually and at each interim reporting date if investments in associates have suffered anyimpairment in accordance with HKAS 36. Details of the approach are stated in the respective accounting policies.The assessment of value in use requires an estimation of future cash flows, including expected dividends, fromthe investments and the selection of appropriate discount rates. Future changes in financial performance andposition of these entities would affect the estimation of impairment loss and cause adjustments to their carryingamounts.Critical Accounting JudgementsAcquisitionsDuring the year, the Group acquired subsidiaries as set out in note 38. The Group determined whether the acquisitionsare to be accounted for as acquisition of businesses or as acquisition of assets by reference to a number of factorsincluding (i) whether the acquiree has relevant input, process or output; (ii) whether the acquiree has planned principalactivities or is pursuing a plan to produce output and will be able to obtain access to customers.7. Turnover/RevenueTurnover/revenue represents the consideration received and receivable from sales, net of discounts, returns andrelated sales taxes, of automobiles and automobile parts and components.The Group’s customer base is diversified and no customer with whom the transactions has exceeded 10% ofthe Group’s revenue.79