Sunny Tew

NOTES TO THE FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2007 (Continued)2. Summary of significant accounting policies (Continued)(h)Financial liabilities (Continued)(iii)Bank borrowings (Continued)Borrowings which are due to be settled within twelve months after the balance sheet date are included in current borrowings in the balance sheet. Otherborrowings due to be settled more than twelve months after the balance sheet date are included in non-current borrowings in the balance sheet.Recognition and derecognitionFinancial liabilities are recognised on the balance sheet when, and only when, the Group and the Company become a party to the contractual provisions of thefinancial instrument.Financial liabilities are derecognised when the contractual obligation has been discharged or cancelled or expired.On derecognition of a financial liability, the difference between the carrying amount and the consideration paid is recognised in the income statement.(i)InventoriesInventories are stated at the lower of cost and net realisable value.Cost is determined on a “first-in, first-out” basis and comprises all costs of purchase, cost of conversion and other related charges incurred in bringing the inventoriesto their present location and condition. In the case of manufactured goods, cost includes cost of materials, direct labour and an appropriate portion of manufacturingoverheads.Net realisable value is the estimated selling price at which the inventories can be realised in the normal course of business after allowing for obsolete, slow-movingand defective inventories.(j)ProvisionsProvisions are recognised when the Group and the Company have a present legal or constructive obligation as a result of a past event, it is probable that an outflowof resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. The expensesrelating to any provisions are recognised in the income statement.If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to theliability. Where discounting is used, the increase in the provision due to the passage of time is recognised as finance costs.Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resourcesembodying economic benefits will be required to settle the obligation, the provision is reversed.HG METAL MANUFACTURING LIMITED ANNUAL REPORT 200751