for the year ended 31 December 2016
NOTES TO THE
FINANCIAL STATEMENTS
Annual Report 2016
-
96
-
2.
Summaryofsignificantaccountingpolicies (cont’d)
2.12
Inventories
Inventories, which are made up of mainly materials, components and spares, are stated at the lower of cost
and net realisable value. Costs incurred in bringing the inventories to their present location and condition are
accounted for as follows:
– Rawmaterials: purchase costs on aweighted averagemethod.
– Work-in-progress: costs of direct materials and labour and a proportion of manufacturing overheads
based on normal operating capacity.
Where necessary, allowance is provided for damaged, obsolete and slowmoving items to adjust the carrying
value of inventories to the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of
completion and the estimated costs necessary tomake the sale.
2.13
Provisions
General
Provisions are recognisedwhen theGrouphas a present obligation (legal or constructive) as a result of a past
event, it is probable that an outflow of economic resources embodying economic benefitswill be required to
settle the obligation and the amount of the obligation can be estimated reliably.
Provisions are reviewed at each reporting period date and adjusted to reflect the current best estimate. If
it is no longer probable that an outflow of economic resources will be required to settle the obligation, the
provision is reversed. If the effect of the time value of money is material, provisions are discounted using a
current pre-tax rate that reflects, where appropriate, the risks specific to the liability. When discounting is
used, the increase in the provision due to the passage of time is recognised as a finance cost.
Warrantyprovision
Provisions for warranty-related costs are recognised when the product is sold or service provided. Initial
recognition is basedonhistorical experience. The initial estimate ofwarranty-related cost is revised annually.
