Financial Statements - Hemas Holdings, Ltd

Hemas Holdings PLC - Annual Report 2007 - 2008Notes to the Financial StatementsEstimates and AssumptionsThe key assumptions concerning the future and other keysources of estimation uncertainty at the Balance Sheet date,that have a significant risk of causing material adjustmentsto the carrying amounts of assets and liabilities within thenext financial year are discussed below. The respectivecarrying amounts of assets and liabilities are given in relatednotes to the financial statements.2.3 SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES2.3.1 Foreign Currency Translations and HedgingThe financial statements are presented in Sri Lankan rupees,which is the Company's functional and presentationcurrency. Transactions in foreign currencies are initiallyrecorded at the functional currency rate ruling at the date ofthe transaction. Monetary assets and liabilities denominatedin foreign currencies are retranslated at the functionalcurrency rate of exchange ruling at the Balance Sheet date.All differences are taken to the Income Statement.Non monetary items that are measured in terms of historicalcost in a foreign currency are translated using the exchangerates as at the dates of the initial transactions. Non monetaryitems measured at fair value in a foreign currency aretranslated using the exchange rates at the date when the fairvalue was determined. The resulting gains and losses areaccounted for in the Income Statement.The assets and liabilities of the foreign subsidiary istranslated into the presentation currency of the Group at therate of exchange ruling at the Balance Sheet date, and theirIncome Statements are translated at the weighted averageexchange rates for the year. The exchange differences arisingon the translation are taken directly to a separate componentof equity. On disposal of a foreign entity, the deferredcumulative amount recognised in equity relating to thatparticular foreign operation is recognised in the IncomeStatement.In respect of transactions which meet the conditions forspecial hedge accounting in relation to cash flow hedges, theportions of the exchange gain or loss on the hedgeinstrument that is determined to be an effective hedge isdirectly in equity through the Statement of Changes inEquity and ineffective portion is recognized in the IncomeStatement.2.3.2 Taxationa) Current TaxesCurrent income tax assets and liabilities for the current andprior periods are measured at the amount expected to berecovered from or paid to the Commissioner General ofInland Revenue. The tax rates and tax laws used to computethe amount are those that are enacted or substantivelyenacted by the Balance Sheet date.The 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.Current income tax relating to items recognised directly inequity is recognised in equity and not in the IncomeStatement.b) Deferred TaxationDeferred income tax is provided, using the liability method,on all temporary differences at the Balance Sheet datebetween the tax bases of assets and liabilities and theircarrying amounts for financial reporting purposes.Deferred income tax liabilities are recognised for all taxabletemporary differences except;• Where the deferred income tax liability arises from theinitial recognition of an asset or liability in a transactionthat is not a business combination and, at the time ofthe transaction, affects neither the accounting profitnor taxable profit or loss; and• In respect of taxable temporary differences associatedwith investments in subsidiaries, associates andinterests in joint ventures, except where the timing ofthe reversal of the temporary differences can becontrolled and it is probable that the temporarydifferences will not reverse in the foreseeable future.Deferred income tax assets are recognised for all deductibletemporary differences, carry-forward of unused tax assetsand unused tax losses, to the extent that it is probable thattaxable profit will be available against which the deductibletemporary differences, and the carry-forward of unused taxassets and unused tax losses can be utilised except:• Where the deferred income tax asset relating to thedeductible temporary difference arises from the initialrecognition of an asset or liability in a transaction thatis not a business combination and, at the time of thetransaction, affects neither the accounting profit nortaxable profit or loss; and• In respect of deductible temporary differencesassociated with investments in subsidiaries, associatesand interests in joint ventures, deferred tax assets areonly recognised to the extent that it is probable that thetemporary differences will reverse in the foreseeablefuture and taxable profit will be available against whichthe temporary differences can be utilised.61