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TEHO INTERNATIONAL INC LTD Annual Report 2012 36
Notes to the
Financial Statements
30 June 2012
2. Summary of Signifcant Accounting Policies (Continued)
Associates
An associate is an entity including an unincorporated entity in which the reporting entity has
a substantial financial interest (usually not less than 20% of the voting power), significant
influence and that is neither a subsidiary nor a joint venture of the investor. Significant
influence is the power to participate in the financial and operating policy decisions of
the investee but is not control or joint control over those policies. The accounting for
investments in an associate is on the equity method. Under equity accounting, the
investment in an associate is carried in the statement of financial position at cost plus
post-acquisition changes in the share of net assets of the associate, less any impairment
in value. The profit or loss reflects the reporting entity’s share of the results of operations
of the associate. Losses of an associate in excess of the reporting entity’s interest in the
relevant associate are not recognised except to the extent that the reporting entity has
an obligation. Profits and losses resulting from transactions between the reporting entity
and an associate are recognised in the financial statements only to the extent of unrelated
reporting entity’s interests in the associate. Unrealised losses are also eliminated unless
the transaction provides evidence of an impairment of the asset transferred. Accounting
policies of associates are changed where necessary to ensure consistency with the
policies adopted by the reporting entity. The net book value of the investment in the
associate is not necessarily indicative of the amounts that would be realised in a current
market exchange. The reporting entity discontinues the use of the equity method from the
date that it ceases to have significant influence over the associate and accounts for the
investment in accordance with FRS 39 from that date. Any gain or loss is recognised in
profit or loss. Any investment retained in the former associate is measured at its fair value
at the date that it ceases to be an associate.
In the company’s own separate financial statements, an investment in an associate
is accounted for at cost less any allowance for impairment in value. Impairment loss
recognised in profit or loss for an associate is reversed only if there has been a change in
the estimates used to determine the asset’s recoverable amount since the last impairment
loss was recognised. The net book value of an investment in the associate is not necessarily
indicative of the amounts that would be realised in a current market exchange.
Intangible Assets
An identifiable non-monetary asset without physical substance is recognised as an
intangible asset at acquisition cost if it is probable that the expected future economic
benefits that are attributable to the asset will flow to the entity and the cost of the asset
can be measured reliably. After initial recognition, an intangible asset with finite useful life
is carried at cost less any accumulated amortisation and any accumulated impairment
losses. An intangible asset with an indefinite useful life is not amortised. An intangible
asset is regarded as having an indefinite useful life when, based on an analysis of all of the
relevant factors, there is no foreseeable limit to the period over which the asset is expected
to generate net cash inflows for the entity.
2. Summary of Signifcant Accounting Policies (Continued)
Intangible Assets (Continued)
The amortisable amount of an intangible asset with finite useful life is allocated on a
systematic basis over the best estimate of its useful life from the point at which the asset
is ready for use. The useful lives are as follows:
Customer relationship - 5 years
Orderbook - Based on actual orders for financial years 2012 and 2013
Leases
Whether an arrangement is, or contains, a lease is based on the substance of the
arrangement at the inception date, that is, whether (a) fulfilment of the arrangement is
dependent on the use of a specific asset or assets (the asset); and (b) the arrangement
conveys a right to use the asset. Leases are classified as finance leases if substantially
all the risks and rewards of ownership are transferred to the lessee. All other leases
are classified as operating leases. At the commencement of the lease term, a finance
lease is recognised as an asset and as a liability in the statement of financial position at
amounts equal to the fair value of the leased asset or, if lower, the present value of the
minimum lease payments, each determined at the inception of the lease. The discount
rate used in calculating the present value of the minimum lease payments is the interest
rate implicit in the lease, if this is practicable to determine, the lessee’s incremental
borrowing rate is used. Any initial direct costs of the lessee are added to the amount
recognised as an asset. The excess of the lease payments over the recorded lease
liability are treated as finance charges which are allocated to each reporting year during
the lease term so as to produce a constant periodic rate of interest on the remaining
balance of the liability. Contingent rents are charged as expenses in the reporting years
in which they are incurred. The assets are depreciated as owned depreciable assets.
Leases where the lessor effectively retains substantially all the risks and benefits of
ownership of the leased assets are classified as operating leases. For operating leases,
lease payments are recognised as an expense in profit or loss on a straight-line basis
over the term of the relevant lease unless another systematic basis is representative
of the time pattern of the user’s benefit, even if the payments are not on that basis.
Lease incentives received are recognised in profit or loss as an integral part of the total
lease expense. Rental income from operating leases is recognised in profit or loss on a
straight-line basis over the term of the relevant lease unless another systematic basis is
representative of the time pattern of the user’s benefit, even if the payments are not on
that basis. Initial direct cost incurred in negotiating and arranging an operating lease
are added to the carrying amount of the leased asset and recognised on a straight-line
basis over the lease term.