Page 38 - GROUP 3 NAKED HOTEL LIMITED ANNUAL REPORT

h) Inventory
Inventories are valued at the lower of cost determined principally on the first-in-first-out basis,
and net realizable value. Cost represents invoiced cost plus direct inventory related expenses. Net
realizable value is the estimate of the selling price in the ordinary course of business, less the
costs of completion and selling expenses.

i) Dividend
Dividend is not recognized as a liability until approved by the Board of Directors within the
financial year.

j) Cash and Cash Equivalents
Cash and cash equivalents are carried in the Balance Sheet at cost. For the purposes of the Cash
Flow Statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks,
other short term highly liquid investments with original maturities of three months or less, and
bank overdrafts. Bank overdrafts are included within borrowings in current liabilities in the
Balance Sheet.

k) Revenue of Recognition
Revenues represent the invoice value of goods and services sold to external customers of the
business, net of sales tax, and after deducting discounts and allowances.

Revenue from the sale of goods is recognized in the Income Statement when the significant risks
and rewards of ownership have been transferred to the buyer.

Revenue from services rendered is recognized in the Income Statement in proportion to the stage
of completion of the transaction at the Balance Sheet date.
Interest income and interest expense are recorded on the accrual basis.

l) Provisions
A provision is recognized in the Balance Sheet when the company has a legal or constructive
obligation as a result of a past event, and it is probable that an outflow of economic benefits will
be required to settle the obligation. If the effect is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market assessments
of the time value of money and, where appropriate, the risks specific to the obligation.
Where the company expects a provision to be reimbursed, for example under an insurance contract,
the reimbursement is recognized as a separate asset but only when the reimbursement is virtually
certain.

m) Segment Reporting

An operating segment is a component of an entity for which discrete financial information is
available, that engages in business activities from which it may earn revenues and incur expenses
and whose operating results are regularly reviewed by the entity’s chief operating decision maker
to make decisions about resources to be allocated to the segment and assess its performance.
Inter-segment pricing is determined on an arm’s length basis.

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