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TEHO INTERNATIONAL INC LTD Annual Report 2012 40
Notes to the
Financial Statements
30 June 2012
2. Summary of Signifcant Accounting Policies (Continued)
Critical Judgements, Assumptions and Estimation Uncertainties (Continued)
Allowance for doubtful trade accounts:
An allowance is made for doubtful trade accounts for estimated losses resulting from
the subsequent inability of the customers to make required payments. If the financial
conditions of the customers were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required in future periods. Management
generally analyses trade receivables and analyses historical bad debts, customer
concentrations, customer creditworthiness, and changes in customer payment terms
when evaluating the adequacy of the allowance for doubtful trade receivables. To the
extent that it is feasible impairment and uncollectibility is determined individually for each
item. In cases where that process is not feasible, a collective evaluation of impairment
is performed. At the end of the reporting year, the trade receivables carrying amount
approximates the fair value and the carrying amounts might change materially within
the next reporting year but these changes would not arise from assumptions or other
sources of estimation uncertainty at the end of the reporting year.
Net realisable value of inventories:
A review is made periodically on inventory for excess inventory and declines in net
realisable value below cost and an allowance is recorded against the inventory balance
for any such declines. The review requires management to consider the future demand
for the products. In any case the realisable value represents the best estimate of the
recoverable amount and is based on the acceptable evidence available at the end
of the reporting year and inherently involves estimates regarding the future expected
realisable value. The usual considerations for determining the amount of allowance or
write-down include ageing analysis, technical assessment and subsequent events. In
general, such an evaluation process requires significant judgement and materially affects
the carrying amount of inventories at the end of the reporting year. Possible changes
in these estimates could result in revisions to the stated value of the inventories. The
carrying amount of inventories at the end of the reporting year was $20,126,646 (2011:
$18,731,828).
Estimated Impairment of Goodwill
An assessment is made annually whether goodwill has suffered any impairment
loss, based on the recoverable amounts of the cash generating units (“CGU”). The
recoverable amounts of the CGUs was determined based on value in use calculations
and these calculations require the use of estimates in relation to future cash flows and
suitable discount rates as disclosed in Note 16A. Actual outcomes could vary from
these estimates as disclosed in Note 16A.
3. Related Party Relationships and Transactions
FRS 24 defines a related party as a person or entity that is related to the reporting entity
and it includes (a) A person or a close member of that person’s family if that person: (i)
has control or joint control over the reporting entity; (ii) has significant influence over the
reporting entity; or (iii) is a member of the key management personnel of the reporting
entity or of a parent of the reporting entity. (b) An entity is related to the reporting entity if
any of the following conditions apply: (i) The entity and the reporting entity are members
of the same group. (ii) One entity is an associate or joint venture of the other entity. (iii)
Both entities are joint ventures of the same third party. (iv) One entity is a joint venture
of a third entity and the other entity is an associate of the third entity. (v) The entity is a
post-employment benefit plan for the benefit of employees of either the reporting entity
or an entity related to the reporting entity. (vi) The entity is controlled or jointly controlled
by a person identified in (a). (vii) A person identified in (a)(i) has significant influence over
the entity or is a member of the key management personnel of the entity (or of a parent
of the entity).
3.1 Related companies:
Related companies in these financial statements include the members of the company’s
group of companies. The ultimate controlling party is Lim See Hoe.
There are transactions and arrangements between the reporting entity and members
of the group and the effects of these on the basis determined between the parties
are reflected in these financial statements. The current intercompany balances are
unsecured without fixed repayment terms and interest unless stated otherwise. For any
significant non-current balances and significant financial guarantees an interest or charge
is charged or imputed unless stated otherwise. The transactions were not significant.
Intragroup transactions and balances that have been eliminated in these consolidated
financial statements are not disclosed as related party transactions and balances below.
3.2 Other related parties:
There are transactions and arrangements between the reporting entity and related parties
and the effects of these on the basis determined between the parties are reflected in
these financial statements. The current related party balances are unsecured without
fixed repayment terms and interest unless stated otherwise. For any significant non-
current balances and significant financial guarantees an interest or charge is charged or
imputed unless stated otherwise.