Sunny Tew

NOTES TO THE FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2007 (Continued)3. Critical accounting judgements and key sources of estimation uncertainty (Continued)Key sources of estimation uncertainty (Continued)(iii)Inventories and related allowanceInventories are stated at the lower of cost and net realisable value. The Group and the Company primarily determine cost of inventories using the “first-in, first out”method. The Group and the Company estimates the net realisable value of inventories based on assessment of receipt or committed sales prices and providefor excess and obsolete inventories based on historical usage, estimated future demand and related pricing. In determining excess quantities, the Group and theCompany considers recent sales activities, related margin and market positioning of its products. These estimates are generally not subject to significant volatility,due to the long life cycles of its products. However, factors beyond its control, such as demand levels, technological advances and pricing competition, could changefrom period to period. If such factors had an adverse effect, the Group and the Company might be required to reduce the value of its inventories, which wouldadversely affect its results operations, cash flows and financial position. The carrying amount of inventories for the Group and Company as at 30 September 2007was $182,409,753 (2006: $101,614,106) and $167,561,050 (2006: $88,874,183) respectively.(iv)Impairment of goodwillTo determine whether there is an impairment of goodwill at balance sheet date, it is necessary to compare the carrying value of goodwill with the recoverable amountfrom the cash-generating unit to which the goodwill is allocated. The recoverable amount represents the present value of the estimated future cash flows expected toarise from the cash-generating unit. In arriving at the recoverable amount, Directors exercise judgement in estimating the future cash flows and the discount rate. Thecarrying amount of the Group’s and the Company’s goodwill at the balance sheet date was $174,817 (2006: 224,545) and $163,417 (2006: $163,417) respectively.(v)Income taxesThe Group has exposure to income taxes in numerous jurisdictions. Significant judgement is involved in determining the Group’s provision for income taxes. TheGroup recognises expected liabilities for tax based on an estimation of the likely taxes due, which requires significant judgement as to the ultimate tax determinationof certain items. Where the actual liability arising from these issues differs from these estimates, such differences will have an impact on income tax and deferred taxprovisions in the period when such determination is made. The carrying amount of the Group’s and the Company’s current income tax payable as at 30 September2007 was $3,590,094 (2006: $1,779,406) and $3,315,320 (2006: 1,581,197) respectively.58 HG METAL MANUFACTURING LIMITED ANNUAL REPORT 2007