FRENCKEN GROUP LIMITED
ANNUAL REPORT 2015
70
NOTES TO FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015 (CONT’D)
3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONT’D)
(a) Critical accounting estimates and assumptions (Cont'd)
(iv) Deferred taxes
Deferred income tax assets are recognised to the extent that it is probable that the taxable profit will be
available against which the deferred income tax assets recognised can be utilised. Management’s judgement
is required to determine the amount of deferred income tax assets that can be recognised, based upon the
likely timing and level of future tax planning strategies. As disclosed in Note 28, the carrying amount of
the Group’s recognised deductible temporary differences as at 31 December 2015 was $2,506,000
(2014 : $1,147,000). Management is of the view that these deferred income tax assets are considered to
be fully recoverable based on anticipated future profitability of the Group.
At the end of the reporting period, the aggregate amount of temporary differences associated with
unremitted earnings of subsidiaries for which deferred tax liabilities have not been recognised is $15,772,000
(2014 : $13,630,000). No liability has been recognised in respect of these differences because the Group is
in a position to control the timing of the reversal of the temporary differences and it is probable that such
differences will not reverse in the foreseeable future.
(v) Impairment of loans and receivables
The provision policy for doubtful debts of the Group is based on the ageing analysis and management’s on-
going evaluation of the recoverability of the outstanding receivables. A considerable amount of judgement
is required in assessing the ultimate realisation of these receivables, as discussed in Note 34(b), including
the assessment of the creditworthiness and the past collection history of each customer. If the financial
conditions of these customers were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. As disclosed in Note 34(f), the carrying amounts of the
Group’s and the Company’s loans and receivables (excluding prepayments) as at 31 December 2015 were
$108,099,000 (2014 : $114,024,000) and $8,464,000 (2014 : $7,716,000) respectively.
(vi) Depreciation of property, plant and equipment
Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives.
Management estimates the depreciation rates of these assets ranges from 1% to 100%. As disclosed in
Note 13, the carrying amounts of the Group’s property, plant and equipment as at 31 December 2015
were $97,713,000 (2014 : $106,410,000). Changes in the expected level of usage and technological
developments could impact the economic useful lives and residual values of these assets. Therefore, future
depreciation charges could be revised.
(vii) Inventories
Inventories are stated at the lower of cost and net realisable value. The management primarily determines
cost of inventories using the “first-in, first-out” method. The management estimates the net realisable value
of inventories based on assessment of receipt or committed sales prices and provide for excess and obsolete
inventories based on historical usage, estimated future demand and related pricing. In determining excess
quantities, the management considers recent sales activities, related margin and market positioning of its
products. However, factors beyond its control, such as demand levels, technological advances and pricing
competition, could change from period to period. Such factors may require the Group to reduce the value of
its inventories. As disclosed in Note 18, the carrying amount of the Group’s inventories as at 31 December
2015 was $98,924,000 (2014 : $95,669,000).
