Page 75 - Paragon Annual Report 2

Notes to the consolidated financial statements (continued) 2 Significant accounting policies (continued)
(o) Government grants
Amounts receivable from government grants are presented in the financial statements only when there is reasonable assurance that the Group fulfils the necessary conditions and that the grants will be received.
Government grants in relation to income are credited in the Consolidated Income Statement for the year.
Government grants in relation to property, plant and equipment are credited to deferred income and released to income on the same basis that the related asset is depreciated.
(p) Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the Consolidated Income Statement over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the Consolidated Statement of Financial Position date.
(q) Non-current assets held for sale
Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. The condition is regarded as met only when the sale is highly probable and the asset is available for sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
(r) Critical accounting judgements
In the course of applying the Group’s accounting policies the following estimations have been made which could have a significant effect on the results of the Group were they subsequently found to be inappropriate.
Forecasts and discount rates
The carrying values of goodwill is dependent on estimates of future cash flows arising from the Group’s operations which, in some circumstances, are discounted to arrive at a net present value. Assessment for impairment involves comparing the book value of an asset with its recoverable amount (being the higher of value in use and fair value less costs to sell). Value in use is determined with reference to projected future cash flows discounted at an appropriate rate. Both the cash flows and the discount rate involve a significant degree of estimation uncertainty.
Carrying value of property, plant and equipment
The carrying value of the Group’s investment in property, plant and equipment represents a key area of management judgement. This includes assumptions in respect of the use of fair values as well as estimation in respect of useful lives and impairments.
Deferred tax assets
The realisation of deferred tax assets is dependent on the generation of sufficient future taxable profits. The Group recognises deferred tax assets to the extent that it is probable that sufficient taxable profits will be available in the future. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Retirement benefit obligations
The calculation of retirement benefits obligations requires estimates to be made of discount rates, inflation rates, future salary and pension increases and mortality. The net surplus in the Consolidated Statement of Financial Position for retirement benefits scheme is €765,000 (2016: €921,000).
Allowances against amounts receivable
The Group considers the recoverability of certain customer and other receivable balances. Determining whether an allowance against these balances is required involves an assessment of the ability of counterparties to make required payments. If the financial positions of the counterparties were to deteriorate, affecting their ability to make payments, additional allowances may be required in future periods. The Group maintains appropriate levels of credit insurance covering its larger non state backed trade receivables. A rigorous system of credit control is applied and amounts receivable are continually monitored. Management specifically monitors historical bad debt, counterparty creditworthiness, current economic trends and changes in payment patterns when evaluating the adequacy of the allowances in place.
Fair value on acquisitions
The carrying value of certain items of the Group’s assets and liabilities are dependent on the fair values assigned to them when acquired. Judgement is used in assessing these fair values especially where open market valuations are not readily accessible.
Paragon Group Limited – 05258175
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