KATHMANDU A NNUAL REPORT  2013 35 notes to the financial statements 1  GENERAL INFORMATION Critical accounting estimates (i) Estimated impairment of goodwill and brands 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (ii) Stock obsolescence (B) PRINCIPLES OF CONSOLIDATION (i) Subsidiaries (A) BASIS OF PREPARATION Entities reporting Statutory base Historical cost convention These financial statements have been prepared under the  The financial statements have been prepared in accordance with  the requirements of the Financial Reporting Act 1993 and the  Companies Act 1993. Kathmandu Holdings Limited is a company registered under the  Companies Act 1993. The acquisition method of accounting is used to account  for business combinations by the Group. The consideration  transferred for the acquisition of a subsidiary is the fair values  of the assets transferred, the liabilities incurred and the equity  interests issued by the Group. The consideration transferred  includes the fair value of any asset or liability resulting from  a contingent consideration arrangement. Acquisition-related  costs are expensed as incurred. Identifiable assets acquired  and liabilities and contingent liabilities assumed in a business  combination are measured initially at their fair values at the  acquisition date. On an acquisition-by-acquisition basis, the Group  recognises any non-controlling interest in the acquiree either at  fair value or at the non-controlling interest’s proportionate share  of the acquiree’s net assets. Subsidiaries are all entities (including special purpose entities)  over which the Group has the power to govern the financial  and operating policies generally accompanying a shareholding  of more than one half of the voting rights. The existence and  effect of potential voting rights that are currently exercisable or  convertible are considered when assessing whether the Group  controls another entity. Subsidiaries are fully consolidated from  the date on which control is transferred to the Group. They are  de-consolidated from the date that control ceases. The consolidated financial statements for the “Group” are for the  economic entity comprising Kathmandu Holdings Limited and its  subsidiaries. The Company and Group are designated as profit  oriented entities for financial reporting purposes. The financial statements for the “Parent” are for Kathmandu  Holdings Limited as a separate legal entity. The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies  have been consistently applied to all periods presented, unless  otherwise stated. The reporting currency used in the preparation of these  consolidated financial statements is New Zealand dollars,  rounded where necessary to the nearest thousand dollars. The Group assesses the likely residual value of inventory. A stock  provision is recognised for stock which is selling for less than  cost. Any increase in these provisions is taken as a reduction to  inventory on the balance sheet and expensed into gross profit on  the income statement.  These financial statements have been prepared in accordance  with Generally Accepted Accounting Practice in New Zealand.  They comply with the New Zealand Equivalents to International  Financial Reporting Standards (NZ IFRS) and other applicable  Financial Reporting Standards, as appropriate for profit-oriented  entities. The financial statements also comply with International  Financial Reporting Standards (IFRS). The group tests annually whether goodwill and brands have  suffered any impairment in accordance with the accounting policy  stated in note 2 (q) (i) & (ii). The recoverable amounts of cash- generating units have been determined based on the fair value  less cost to sell calculation. These calculations require the use of  estimates (note 13). The Group 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 assets and liabilities  within the next financial year are discussed below. historical cost convention, as modified by the revaluation of  certain assets as identified in specific accounting policies below. Kathmandu Holdings Limited (the Company) and its subsidiaries  (together the Group) is a designer, marketer and retailer of  clothing and equipment for travel and adventure. It operates in  New Zealand, Australia and the United Kingdom. The Company is a limited liability company incorporated and  domiciled in New Zealand. The address of its registered office is  11 Mary Muller Drive, Heathcote, Christchurch. The Company is listed on the NZX and ASX.  These audited consolidated financial statements have been  approved for issue by the Board of Directors on 24 September  2013.