China XLX Fertiliser Ltd

NOTES TO THE FINANCIAL STATEMENTS31 December 20082. Summary of significant accounting policies (cont’d)2.20 Income taxes (cont’d)(b)Deferred tax (cont’d)- In respect of deductible temporary differences and carry-forward of unused tax credits andunused tax losses, if it is not probable that taxable profit will be available against which thedeductible temporary differences and carry-forward of unused tax credits and unused taxlosses can be utilised.The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced tothe extent that it is no longer probable that sufficient taxable profit will be available to allow all orpart of the deferred income tax asset to be utilised. Unrecognised deferred tax assets are reassessedat each balance sheet date and are recognised to the extent that it has become probable that futuretaxable profit will allow the deferred tax asset to be utilised.Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the yearwhen the asset is realised or the liability is settled, based on tax rates (and tax laws) that have beenenacted or substantively enacted at the balance sheet date.Deferred taxes are recognised in the income statement except that deferred tax relating to itemsrecognised directly in equity is recognised directly in equity and deferred tax arising from a businesscombination is adjusted against goodwill on acquisition.(c)Value-added-tax (“VAT”)2.21 Segment reportingThe Group’s sales of goods in the PRC are generally subjected to VAT at the applicable tax rates of13% (for Urea and Compound fertiliser segments) and 17% (for Methanol segment) for PRC domesticsales. However, as part of government subsidies for the fertiliser industry, full VAT exemption is givento Urea and Compound fertiliser.Revenues, expenses and assets are recognised net of the amount of VAT except:Where the VAT incurred on a purchase of assets or services is not recoverable from the taxationauthority, in which case the VAT is recognised as part of the cost of acquisition of the asset or as partof the expense item as applicable; andReceivables and payables that are stated with the amount of VAT included.The net amount of VAT recoverable from, or payable to, the taxation authority is included as part ofreceivables or payables in the balance sheet.A business segment is a distinguishable component of the Group that is engaged in providing productsor services that are subject to risks and return that are different from those of other business segments. Ageographical segment is a distinguishable component of the Group that is engaged in providing products orservices within a particular economic environment and that is subject to risk and returns that are differentfrom those of components operating in other economic environment.Annual Report 200858