Notes to the Financial Statements 30 June 2008 - Abterra

Notes to the Financial Statements30 June 20083. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS3.1 Critical judgements in applying the entity’s accounting policiesIn the process of applying the entity’s accounting policies, which are described in Note 2, managementhas made the following judgements that have the most significant effect on the amounts recognised in thefinancial statements (apart from those involving estimations, which are dealt with below):Revenue recognitionIn making its judgement, management considered the detailed criteria for the recognition of revenue fromthe sale of goods set out in FRS 18 Revenue, in particular, whether the Group had transferred to the buyerthe significant risks and rewards of ownership of the goods.3.2 Critical accounting estimates and assumptionsThe key assumptions concerning the future, and other key sources of estimates and assumptions at thebalance sheet date, that have a significant risk of causing a material adjustment to the carrying amountsof assets and liabilities within the next financial year, are discussed below:Estimated impairment of investment in associates and financial assets, available-for-saleThe Group assesses impairment of the above-mentioned assets wherever events or changes incircumstances indicate that the carrying amount of an asset may not be recoverable. If any such indicationexists, the recoverable amount (i.e. higher of the fair value less cost to sell and value in use) of the assetsis estimated to determine the impairment loss. In making this judgement, the Group evaluates the value inuse which is supported by the net present value of future cash flows derived from such assets using cashflow projections which have been discounted at an appropriate rate.Impairment and collectability of trade and other receivablesThe Group follows the guidance of FRS 39 (revised 2004) to determine when trade and other receivablesare impaired. This determination requires certain level of judgement. The Group first assesses whetherobjective evidence of impairment exists for individually significant debtors and collectively for debtorswhich are not individually significant. The Group evaluates, among other factors, financial status of thedebtors, any changes in the collection status and changes in industry conditions that affect the debtors.Trade and other receivables that are collectively evaluated for impairment are based on historical lossexperience for receivables with similar credit risk characteristics.The methodology and assumptions used for estimating potential impairment loss are reviewed regularlyto reduce any differences between loss estimates and actual loss experience.ABTERRAAnnual Report 200865