China XLX Fertiliser Ltd

NOTES TO THE FINANCIAL STATEMENTS31 December 20082. Summary of significant accounting policies (cont’d)2.7 Impairment of non-financial assetsThe Group assesses at each reporting date whether there is an indication that an asset may be impaired. Ifany such indication exists, or when annual impairment assessment for an asset is required, the Group makesan estimate of the asset’s recoverable amount.An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs tosell and its value in use and is determined for an individual asset, unless the asset does not generate cashinflows that are largely independent of those from other assets. In assessing value in use, the estimatedfuture cash flows are discounted to their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to the asset. Where the carryingamount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down toits recoverable amount.Impairment losses of continuing operations are recognised in the income statement through the ‘Generaland administrative expenses’ line item.An assessment is made at each reporting date as to whether there is any indication that previouslyrecognised impairment losses may no longer exist or may have decreased. If such indication exists, therecoverable amount is estimated. A previously recognised impairment loss is reversed only if there has beena change in the estimates used to determine the asset’s recoverable amount since the last impairment losswas recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount.That increased amount cannot exceed the carrying amount that would have been determined, net ofdepreciation, had no impairment loss been recognised for the asset previously. Such reversal is recognisedin the income statement and the depreciation charge is adjusted in future periods to allocate the asset’srevised carrying amount, less any residual value, on a systematic basis over its remaining useful life.2.8 Related partyAn entity or individual is considered a related party of the Group for the purposes of the consolidatedfinancial statements if: i) it possesses the ability (directly or indirectly) to control or exercise significantinfluence over the operating and financial decisions of the Group or vice versa; or ii) it is subjected tocommon control or common significant influence.2.9 Financial assetsFinancial assets are recognised on the balance sheet when, and only when, the Group becomes a party tothe contractual provisions of the financial instrument.When financial assets are recognised initially, they are measured at fair value, plus, in the case of financialassets not at fair value through profit or loss, directly attributable transaction costs. The Group determinesthe classification of its financial assets after initial recognition and, where allowed and appropriate, reevaluatesthis designation at each financial year-end.A financial asset is derecognised where the contractual right to receive cash flows from the asset hasexpired. On derecognition of a financial asset in its entirety, the difference between the carrying amountand the sum of the consideration received and any cumulative gain or loss that has been recognised directlyin equity is recognised in the income statement.Annual Report 200852