ANNUAL REPORT - KORADO, as

KORADO GROUP
Notes to the Consolidated Financial Statements for the Year Ended 31 December 2010 (In thousand CZK)
l) Interest-bearing Loans and Borrowings
All loans and borrowings are initially recognized at the fair
value of the consideration received less directly attributable
transaction costs. After initial recognition, interest bearing
loans and borrowings are subsequently measured at amortized
cost using the effective interest method. Gains and
losses are recognized in the statement of comprehensive income
when the liabilities are derecognized as well as through
the amortization process.
Any portion of long-term loans and borrowings, which is due
within one year of the balance sheet date or for which there
was a breach in the loan covenant and the approval of breach
was not received until year-end, is classified as short-term.
m) Borrowing Costs
Borrowing costs are capitalized if they are directly attributable
to the acquisition, construction or production of a qualifying
asset. Capitalization of borrowing costs commences
when the activities to prepare the asset are in progress and
expenditures and borrowing costs are being incurred. Borrowing
costs are capitalized until the assets are ready for
their intended use. Borrowing costs include interest charges
and other costs incurred in connection with the borrowing
of funds. In determining the amount of borrowing costs
eligible for capitalization during a period, any investment income
earned on borrowed funds is deducted from the borrowing
costs incurred. Borrowing costs other than those which
meet the criteria for capitalization are expensed as incurred.
n) Income Taxes
The provision for corporate tax is calculated in accordance
with local tax jurisdictions of respective countries. For Czech
entities corporate tax is calculated in accordance with Czech
tax regulations and is based on the income or loss reported
under Czech accounting regulations, adjusted for appropriate
permanent and temporary differences from Czech taxable
income. In the Czech Republic, income taxes are calculated
on an individual company basis as the tax laws do
not permit consolidated tax returns. Current income taxes
are provided at a rate of 19 % and 20 % for the years ended
31 December 2010 and 2009, respectively, after adjustments
for certain items which are not deductible for taxation
purposes. The Czech corporate income tax rate for 2011 will
be 19 %.
Certain items of income and expense are recognized in different
periods for tax and financial accounting purposes. Deferred
taxes are calculated using the balance sheet liability
method. Deferred income taxes are provided on temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts
used for income tax purposes. Deferred tax assets and liabilities
are measured using the tax rates expected to apply to
taxable income in the years in which those temporary differ-
ences are expected to be recovered or settled based on tax
rates enacted or substantially enacted at the balance sheet
date.
Deferred tax assets and liabilities are recognized regardless
of when the timing difference is likely to reverse. Deferred tax
assets and liabilities are not discounted and are classified
as non-current assets (liabilities) in the consolidated balance
sheets. Deferred tax assets are recognized when it is probable
that sufficient taxable profits will be available against
which the deferred tax assets can be utilized. A deferred tax
liability is recognized for all taxable temporary differences.
The carrying amount of a deferred tax asset is reassessed
and reduced at each balance sheet date to the extent that
it is no longer probable that sufficient taxable profit will be
available to allow the benefit of part or entire deferred tax
asset to be utilized.
Deferred tax assets and liabilities are offset if they relate to
income taxes within the same tax jurisdiction and the Group
intends to settle its due tax payables and receivables on
a “net basis”.
o) Revenue Recognition
Revenue is recognized when it is probable that the economic
benefits associated with the transaction will flow to the enterprise
and the amount of the revenue can be measured reliably.
Sales are recognized net of sales taxes and discounts
when delivery has taken place and transfer of risks and rewards
has been completed.
Interest is recognized on a time proportion basis that reflects
the effective yield on the asset.
p) Provisions
A provision is recognized when, and only when an enterprise
has a present obligation (legal or constructive) as a result of
a past event and it is probable (i.e. more likely than not) that
an outflow of resources embodying economic benefits will
be required to settle the obligation, and a reliable estimate
can be made of the amount of the obligation. Provisions are
reviewed at each balance sheet date and adjusted to reflect
the current best estimate. Where the effect of the time value
of money is material, the amount of a provision is the present
value of the expenditures expected to be required to settle
the obligation.
q) Leases
Leases are classified as finance leases whenever the terms
of the lease transfer substantially all the risks and rewards
of ownership to the lessee. All other leases are classified as
operating leases. Assets held under finance leases are recognized
as assets of the Group at the lower of their fair value
at the date of acquisition and the current value of minimum
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