The company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of the assets and liabilities within the next financial year are addressed below.
(a) Useful economic lives of assets
The annual depreciation charge for tangible assets is sensitive to changes in the estimated useful economic lives and residual values of the assets. The useful economic lives and residual values are re-assessed regularly. They are amended when necessary to reflect current estimates, based on future investments, economic utilisation and the physical condition of the assets.
(b) Sales return provision
The company sales are subject to changing consumer demands and trends. As a result goods that are sold to retailers can be returned to the company if not sold. A provision for those returns is made in those accounts. When calculating the stock return provision, management considers the nature and condition of the goods, as well as applying assumptions around anticipated returns.