3.
SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES (CONTINUED)
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the
end of the reporting period are discussed below. The Group based its assumptions and estimates
on parameters available when the financial statements were prepared. Existing circumstances
and assumptions about future developments, however, may change due to market changes or
circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions
when they occur.
(a)
Impairment of investment in associates
The directors of the Company follow the guidance of FRS 36 – Impairment of Assets, in
determining whether investment in associates is other than temporary impaired. This requires
assumptions made regarding the duration and extent to which the fair value of an investment
is less than its costs and the financial health of and near-term business outlook for the
investment, including factors such as industry and sector performance, changes in technology
and operational and financing cash flow.
Based on the directors’ assessment of 5 years dividend inflow, there is no requirement to
provide for any allowance for impairment in value of investment in “BRC Asia Limited” as
recoverable amount exceed the carrying value of investment. If the discount rate that is used
to extrapolate the cash flows of recoverable amount had changed 0.5% higher/lower with
all other variables held constant the recoverable amount would exceed the carrying value of
investment by $15,991,000 and $3,830,000 respectively.
The Group’s carrying amount of investment in associates at the balance sheet date is disclosed
in Note 13 of the financial statements.
(b)
Inventories and related allowance
Inventories are stated at the lower of cost and net realisable value. The Group primarily
determines cost of inventories using the “weighted average” method. The Group estimates
the net realisable value of inventories based on assessment of receipt or committed sales
prices and provides for excess and obsolete inventories based on historical usage, estimated
future demand and related pricing.
In determining excess quantities, the Group considers recent sales activities, related margins
and market positioning of its products. These estimates are generally not subject to significant
volatility, due to the long life cycles of its products. However, factors beyond its control, such
as demand levels, technological advances and pricing competition, could change from period
to period. If such factors had an adverse effect, the Group might be required to reduce the
value of its inventories, which would adversely affect its results, cash flows and financial
position.
75
HG METAL MANUFACTURING LIMITED
ANNUAL REPORT 2015
NOTES TO THE
FINANCIAL STATEMENTS
For the financial year ended 31 December 2015
