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Notes to the Consolidated Financial Statements

31st March 2018

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (CONTINUED)

(a) Provision for obsolete or slow moving inventories

The Group makes provision for obsolete or slow moving inventories based on consideration of
obsolescence of raw materials and work in progress and the net realisable value of finished goods.
The identification of inventory obsolescence and estimated selling price in the ordinary course
of business require the use of judgement and estimates. Where the expectation is different from
the original estimate, such difference will impact the carrying amount of inventory and impairment
provision in the year in which such estimate has been changed.

(b) Capitalisation of deferred development costs

Determining the development costs, including the time and costs for individual projects, to
be capitalised requires estimations and assumptions based on the expected future economic
benefits to be generated by the products resulting from these development costs. Other important
estimations and assumptions in this assessment process are the distinction between research
and development, the feasibility of completing the projects and the likelihood of such products to
deliver sufficient future economic benefits to the Group.

(c) Estimate of fair value of investment properties

The fair value of investment properties is determined by using valuation technique. Details of the
judgement and assumptions have been disclosed in Note 15.

(d) Estimate of useful lives of property, plant and equipment and intangible assets

The Group has significant property, plant and equipment and intangible assets. The Group is
required to estimate the useful lives of property, plant and equipment and intangible assets in order
to ascertain the amount of depreciation and amortisation charges for each reporting period.

The useful lives are estimated at the time of purchase of these assets after considering future
technology changes, business developments and the Group’s strategies. The Group performs
annual reviews to assess the appropriateness of the estimated useful lives. Such review takes
into account any unexpected adverse changes in circumstances or events, including declines
in projected operating results, negative industry or economic trends and rapid advancement in
technology. The Group extends or shortens the useful lives and/or makes impairment provisions
according to the results of the review.

84 ALCO HOLDINGS LIMITED ANNUAL REPORT 2018