Osim FR 050407.indd

Notes to the Financial Statements - 31 December 2006 (cont’d)2. Summary of significant accounting policies (cont’d)2.22 Provisions (cont’d)a) Provision for warrantiesThe Group and the Company provides free repair services and free replacement of major components of its productsfor a period of twelve months after sales.The costs of the warranty obligation under which the Group and the Company agree to remedy defects in its productsare accrued at the time the related sales are recognised. Provision for warranty is accrued based on the estimatedcosts of fulfi lling the total obligation, including handling and transportation costs. The costs are estimated bymanagement based on historical experience. The assumptions used to estimate warranty accruals are reviewedperiodically in light of actual experience.b) Provision for redemption of customers’ reward pointsThe Group issues “VIP cards” to customers who enroll as VIP members. Customers holding VIP cards are awardedreward points upon the purchase of the Group’s products. These reward points are not transferable or exchangeablefor cash but can be used by VIP members to redeem products. The Group recognises the estimated liability ofthe cost of the products to be redeemed by the customers using the reward points given on the purchases made.The provision is calculated based on the estimated value of the reward points, which approximates the cost of theproducts to the Group.c) Provision for restoration costsIn accordance with the lease agreements, the Group and the Company has an obligation to restore the retail outlets,warehouses and leasehold properties to their state and condition as at the commencement of the lease and to thesatisfaction of the landlord. A provision is recognised at the balance sheet date for expected restoration costs basedon past experience of sale outlets and warehouses closure.2.23 Employee benefitsa) Defined contribution plansThe Group participates in the national pension schemes as defi ned by the laws of the countries in which it hasoperations. In particular, the Singapore companies in the Group make contributions to the Central Provident Fundscheme in Singapore, a defi ned contribution pension scheme. Contributions to national pension schemes arerecognised as an expense in the period in which the related service is performed.Notes to the Financial Statements 100Annual Report 2006