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TEHO INTERNATIONAL INC LTD Annual Report 2012 39
Notes to the
Financial Statements
30 June 2012
2. Summary of Signifcant Accounting Policies (Continued)
Fair Value of Financial Instruments
The carrying values of current financial instruments approximate their fair values due
to the short-term maturity of these instruments and the disclosures of fair value are
not made when the carrying amount of current financial instruments is a reasonable
approximation of fair value. The fair values of non-current financial instruments may not
be disclosed separately unless there are significant differences at the end of the reporting
year and in the event the fair values are disclosed in the relevant notes. The maximum
exposure to credit risk is: the total of the fair value of the financial assets and other
financial instruments: the maximum amount the entity could have to pay if the guarantee
is called on; and the full amount of any commitments on borrowings at the end of the
reporting year. The fair value of a financial instrument is derived from an active market or
by using an acceptable valuation technique. The appropriate quoted market price for an
asset held or liability to be issued is usually the current bid price without any deduction
for transaction costs that may be incurred on sale or other disposal and, for an asset
to be acquired or liability held, the asking price. If there is no market, or the markets
available are not active, the fair value is established by using an acceptable valuation
technique. The fair value measurements are classified using a fair value hierarchy of 3
levels that reflects the significance of the inputs used in making the measurements, that
is, Level 1 for the use of quoted prices (unadjusted) in active markets for identical assets
or liabilities; Level 2 for the use of inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly
(i.e., derived from prices); and Level 3 for the use of inputs for the asset or liability that
are not based on observable market data (unobservable inputs). The level is determined
on the basis of the lowest level input that is significant to the fair value measurement
in its entirety. Where observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a Level 3 measurement.
Equity
Equity instruments are contracts that give a residual interest in the net assets of the
company. Ordinary shares are classified as equity. Equity instruments are recognised
at the amount of proceeds received net of incremental costs directly attributable to the
transaction. Dividends on equity are recognised as liabilities when they are declared.
Interim dividends are recognised when declared by the directors.
2. Summary of Signifcant Accounting Policies (Continued)
Provisions
A liability or provision is recognised when there is 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 a reliable
estimate can be made of the amount of the obligation. Provisions are made using best
estimates of the amount required in settlement and where the effect of the time value
of money is material, the amount recognised is the present value of the expenditures
expected to be required to settle the obligation using a pre-tax rate that reflects current
market assessments of the time value of money and the risks specific to the obligation.
The increase in the provision due to passage of time is recognised as interest expense.
Changes in estimates are reflected in profit or loss in the reporting year they occur.
Government Grants
A government grant is recognised at fair value when there is reasonable assurance that the
conditions attaching to it will be complied with and that the grant will be received. A grant
in recognition of specific expenses is recognised as income over the periods necessary to
match them with the related costs that they are intended to compensate, on a systematic
basis. A grant related to depreciable assets is allocated to income over the period in which
such assets are used in the project subsidised by the grant. A government grant related
to assets, including non-monetary grants at fair value, is presented in the statement of
financial position.
Critical Judgements, Assumptions and Estimation Uncertainties
The critical judgements made in the process of applying the accounting policies that
have the most significant effect on the amounts recognised in the financial statements
and the key assumptions concerning the future, and other key sources of estimation
uncertainty at the end of the reporting year, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities currently or within
the next reporting year are discussed below. These estimates and assumptions are
periodically monitored to ensure they incorporate all relevant information available at
the date when financial statements are prepared. However, this does not prevent actual
figures differing from estimates.