Page 18 - Kitron Annual Report 2011

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Notes to the consolidated financial statements
Kitron annual report 2011
Recognition and measurement
Regular purchases and sales of financial assets are rec-
ognised on the trade-date - the date on which the group
commits to purchase or sell the asset. Investments are
initially recognised at fair value plus transaction costs for
all financial assets not carried at fair value through profit
or loss. Financial assets carried at fair value through profit
or loss are initially recognised at fair value, and transaction
costs are expensed in the income statement. Financial
assets are derecognised when the rights to receive cash
flows from the investment have expired or have been
transferred and the group has transferred substantially all
risks and rewards of ownership. Available-for-sale financial
assets and financial assets at fair value through profit
or loss are subsequently carried at fair value. Loans and
receivables are subsequently carried at amortised cost
using the effective interest method.
Inventory comprises purchased raw materials, work
in progress and finished goods. It is stated at the
lower of average acquisition cost and net realisable
value. Cost is determined using the weighted average
method. Acquisition cost for work in progress are di-
rect material costs and payroll expenses plus indirect
costs (based on normal activity).
Accounts receivable
Accounts receivable are recognised initially in the bal-
ance sheet at their fair value. Provision for bad debts is
recognised in the accounts when objective indicators
suggest that the group will not receive a settlement in
accordance with the original terms. Significant finan-
cial problems at the customer, the probability that the
customer will go into liquidation or undergo financial
reconstruction, and postponements of or shortfalls in
payment are regarded as indicators that a receivable
needs to be written down. The provision represents the
difference between the carrying amount and the recov-
erable amount, which is the present value of expected
cash flows discounted by the effective interest rate.
Changes in the provision are recognised in the profit
and loss account as other operating expenses.
Cash and cash equivalents
Cash and cash equivalents include cash and deposits
in bank accounts. Amounts drawn on overdraft facili-
ties are included in loans under current liabilities.
Share capital
The share capital comprises the number of shares
multiplied by their nominal value, and are classified as
equity. Expenses which can be attributed directly to
the issue of new shares or options (less tax) are recog-
nised in equity as a reduction in the proceeds received.
Loans are recognised initially at fair value, net of
transaction costs incurred. Loans are subsequently
stated at amortised cost; any difference between the
proceeds (net of transaction costs) and the redemp-
tion value is recognised in the income statement over
the period of the loans using the effective interest
method. Borrowing costs are charged to the profit
and loss. Loans are classified as current liabilities un-
less the group has an unconditional right to defer set-
tlement of the liability for at least 12 months after the
balance sheet date.
Current and deferred income tax
The tax expense for the period comprises current and
deferred tax. Tax is recognised in the income statement,
except to the extent that it relates to items recognised in
other comprehensive income or directly in equity. In this
case, the tax is also recognised in other comprehensive
income or directly in equity, respectively.
The current income tax charge is calculated on the
basis of the tax laws enacted or substatantively
enacted at the balance sheet date in the countries
where the company and its subsidiaries operate and
generate taxable income. Management periodically
evaluates positions taken in tax returns with respect to
situations in which applicable tax regulation is subject
to interpretation. It establishes provisions where ap-
propriate on the basis of amounts expected to be paid
to the tax authorities.
Deferred tax is calculated using the liability method
on all temporary differences arising between the
tax bases of assets and liabilities and their carrying
amounts in the consolidated financial statements. If,
however, deferred tax arises when initially recognis-
ing a liability or asset in a transaction which is not the
integration of a business and which at the transaction
date has no effect on the profit and loss statement or
on tax, it is not recognised. Deferred tax is determined
using tax rates and laws which have been substan-
tially enacted by the balance sheet date and are
expected to apply when the related deferred income
tax asset is realised or the deferred income tax liability
settled. Deferred tax assets are recognised to the ex-
tent that it is probable that future taxable profit will be
available, and that the temporary differences can be
deducted from this profit. Deferred tax is calculated
on temporary differences arising on investments in
subsidiaries, except where the timing of the reversal of
the temporary differences is controlled by the group
and it is probable that they will not be reversed in the
foreseeable future.