China XLX Fertiliser Ltd

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NOTES TO THE FINANCIAL STATEMENTS31 December 20082. Summary of significant accounting policies (cont’d)2.24 Derivative financial instruments and hedging activities (cont’d)Cash flow hedgesChanges in the fair value of the hedging instrument designated as a cash flow hedge are recognised directlyin equity as hedging reserve to the extent that the hedge is effective. To the extent that the hedge isineffective, changes in fair value are recognised immediately in the income statement.Amounts recognised in equity is transferred to the income statement in the period that the hedged itemaffects the income statement, such as when the hedged financial income or financial expense is recognisedor when a forecast sale occurs.When the hedged item is a non-financial asset, the amount recognised in equity is transferred to thecarrying amount of the asset when it is recognised. If the forecast transaction or firm commitment is nolonger expected to occur, amounts previously recognised in equity are transferred to the income statement.If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminatedor exercised without replacement or rollover, or if its designation as a hedge is revoked, hedge accountingis discontinued prospectively. The cumulative gain or loss previously recognised in equity remains in equityuntil the forecast transaction or firm commitment occurs.Derivatives that are not designated or do not qualify for hedge accountingFair value changes on these derivatives are recognised in the income statement when the changes arise.Hedging reserveHedging reserve records the portion of the fair value changes on derivatives that are designated as hedginginstruments in cash flow hedges that are determined to be effective.3. Significant accounting estimates and judgementsThe preparation of the Group’s financial statements requires management to make judgements, estimatesand assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and thedisclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions andestimates could result in outcomes that could require a material adjustment to the carrying amount of theasset or liability affected in the future.3.1 Judgements made in applying accounting policiesIn the process of applying the Group’s accounting policies, management has made the followingjudgements, apart from those involving estimations, which has the most significant effect on the amountsrecognised in the financial statements:Income taxesThe Group has exposure to income taxes in the PRC. Significant judgement is involved in determiningthe provision for income taxes. There are certain transactions and computations for which the ultimatetax determination is uncertain during the ordinary course of business. The Group recognises liabilities forexpected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcomeof these matters is different from the amounts that were initially recognised, such differences will impactthe income tax and deferred tax provisions in the period in which such determination is made. The carryingamount of the Group’s tax payable at 31 December 2008 was Rmb 220,221 (2007: Rmb 930,000).Annual Report 200860
NOTES TO THE FINANCIAL STATEMENTS31 December 20083. Significant accounting estimates and judgements (cont’d)3.2 Key sources of estimation uncertaintyThe key assumptions concerning the future and other key sources of estimation uncertainty at the balancesheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assetsand liabilities within the next financial year are discussed below:Useful lives of plant and machineryThe cost of plant and machinery for the production of fertilisers is depreciated on a straight-line basis overthe estimated useful life of the assets. Management estimates the useful life of the production lines to be8-15 years. This is a common life expectancy applied in the manufacturing industry. The carrying amount ofthe Group’s plant and machinery as at 31 December 2008 was Rmb 669,736,372 (2007: Rmb 704,237,000).Changes in the expected level of usage and technological developments could impact the economic usefullives of the plant and machinery, therefore depreciation charges could be revised in line with revisions toexpected economic useful lives. A 5% difference in the expected useful lives of the plant and machinerywould result in approximately 0.9% (2007: 0.6%) variance in the Group’s profit for the year.4. RevenueGroup2008 2007Rmb’000 Rmb’000Sale of goods 2,059,102 1,541,422Service income 25,841 –2,084,943 1,541,422Revenue represents sales of goods and service income earned net of discounts and value-added-tax (VAT).China XLX Fertiliser Ltd.61
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will still remain a necessity with
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Agriculture forms thefoundation of
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OUR PRODUCTSFruits ofour LaborAll o
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China XLX Fertiliser Ltd

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