Annual - Johnson Electric

NOTES TO THE ACCOUNTS
3. Financial risk management (Cont’d)
3.1 FINANCIAL RISK FACTORS (Cont’d)
(c) Liquidity risk
The Group follows a policy of prudence in managing its cash balances and maintains a high level of
liquidity and the availability of funding through an adequate amount of bank credit facilities.
(d) Interest rate risk
The Group’s current borrowings are mainly on floating rate basis and interest rate exposure is closely
monitored by the management.
(e) Price risk
The Group is exposed to commodity price risk, mainly due to fluctuations in steel and copper prices. The
price risk due to steel and copper is reduced through contracts with our suppliers and hedging through
derivatives market respectively.
4. Accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
4.1 ACCOUNTING ESTIMATES AND ASSUMPTIONS
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will,
by definition, seldom equal the related actual results. The estimates and assumptions that have a significant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year are discussed below.
(a) Estimated impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting
policy stated in note 2.10. The recoverable amounts have been determined based on value-in-use
calculations. These calculations require the use of estimates (note 9).
(b) Income taxes
The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in
determining the worldwide provision for income taxes. There are many transactions and calculations for
which the ultimate tax determination is uncertain during the ordinary course of business. Where the final
tax outcome of these matters is different from the amounts that were initially recorded, such differences
will impact the income tax and deferred tax provisions in the period in which such determination is made.
70 Johnson Electric Holdings Limited