2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.15 Inventories
Inventories are stated at the lower of cost and net realisable value. Costs incurred in bringing the
inventories to their present location and condition are accounted for as follows:
–
Raw materials: purchase costs on a weighted average cost basis;
–
Finished goods and work-in-progress: costs of direct materials and labour and a proportion
of manufacturing overheads based on normal operating capacity. These costs are assigned
on a weighted average cost basis.
Where necessary, allowance is provided for damaged, obsolete and slow moving items to adjust the
carrying value of inventories to the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated
costs of completion and the estimated costs necessary to make the sale.
2.16 Provisions
General
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result
of a past event, it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation and the amount of the obligation can be estimated reliably.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best
estimate. If it is no longer probable that an outflow of economic resources will be required to settle
the obligation, the provision is reversed. If the effect of the time value of money is material, provisions
are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to
the liability. When discounting is used, the increase in the provision due to the passage of time is
recognised as a finance cost.
Provision for reinstatement costs
Provision for reinstatement cost arose from the estimated cost of dismantling, removing and restoring
the leasehold properties at the end of their lease terms.
The reinstatement costs which are provided at the present value of estimated costs required to settle
the obligation are recognised as part of the cost of that particular asset. The estimated future cost
if reinstatement is reviewed annually and adjusted as appropriate.
68
NOTES TO THE
FINANCIAL STATEMENTS
For the financial year ended 31 December 2015
HG METAL MANUFACTURING LIMITED
ANNUAL REPORT 2015
