BAKERTECHNOLOGYLIMITED
ANNUALREPORT2013
101
Notes to the
Financial Statements
for the financial year ended 31December 2013
3.
Significantaccounting judgementsand estimates (CONT’D)
3.1
Judgmentsmade in applying accountingpolicies (cont’d)
Determinationof functional currency
TheGroupmeasures foreign currency transactions in the respective functional currencies of theCompany and its subsidiaries.
In determining the functional currencies of the entities in the Group, judgment is required to determine the currency that
mainly influences sales prices for goods and services and of the country whose competitive forces and regulations mainly
determines the sales prices of its goods and services. The functional currencies of the entities in the Group are determined
based onmanagement’s assessment of the economic environment inwhich the entities operate and the entities’ process of
determining sales prices.
3.2
Key sources of estimationuncertainty
Thekeyassumptions concerning the futureandother key sourcesof estimationuncertaintyat theendof each reportingperiod
are discussed below. The Group based its assumptions and estimates on parameters availablewhen the financial statements
were prepared. Existing circumstances and assumptions about future developments, however, may change due to market
changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when
they occur.
(a)
Impairment of non-financial assets
An impairment existswhen the carrying valueof an asset or cashgeneratingunit exceeds its recoverable amount,which
is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on
availabledata frombinding sales transactions in an arm’s length transactionof similar assets or observablemarket prices
less incremental costs for disposing theasset. The value inuse calculation is basedonadiscounted cashflowmodel. The
cashflows arederived from thebudget for thenext five years anddonot include restructuringactivities that theGroup is
not yet committed toor significant future investments thatwill enhance the asset’s performance of the cashgenerating
unit being tested. The recoverableamount ismost sensitive to thediscount rateused for thediscounted cashflowmodel
as well as the expected future cash inflows and the growth rate used for extrapolation purposes. Further details of the
key assumptions applied in the impairment assessment of goodwill are given inNote 12 to the financial statements.
(b)
Impairment of loans and receivables
The Group assesses at the end of each reporting period whether there is any objective evidence that a financial asset
is impaired. To determine whether there is objective evidence of impairment, the Group considers factors such as the
probability of insolvency or significant financial difficulties of the debtor and default or significant delay inpayments.
Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on
historical loss experience for assetswith similar credit risk characteristics. The carrying amount of theGroup’s loans and
receivable at the endof the reporting period is disclosed inNote 19 to the financial statements.
