| Description of business and significant accounting policies | 1 Description of business and significant accounting policies Bonso Electronics International Inc. and
its subsidiaries (collectively, the “Company” or “Group”) are engaged in the designing, manufacturing and selling
of a comprehensive line of electronic scales and weighing instruments, pet electronics products and other products. Further, the Group
also rents or leases both factory facilities and equipment not being currently used to third parties. The consolidated financial statements have
been prepared in United States dollars and in accordance with generally accepted accounting principles in the United States of America.
The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting periods. Significant estimates made by management include valuation
of inventories, allowance for expected credit losses, stock-based compensation, expected useful life of long-lived assets, valuation allowance
for deferred tax assets, incremental borrowing rate to calculate lease liabilities and right-of-use (“ROU”) assets and historical
average sales return to calculate refund. Actual results could differ from those estimates. COVID-19 Considerations For the month after the outbreak of COVID-19,
domestic business activities in China were disrupted by a series of emergency quarantine measures taken by the government. In February
2020, the Company’s plant and offices in People’s Republic of China (“PRC”) were temporarily suspended for two
weeks according to the instruction of the local government, related to COVID-19. Emergency quarantine measures and travel restrictions
caused business disruptions across China. The evolution of quarantine measures and travel restrictions resulted in negative consequences
for our business operations including, but not limited to, the temporary closure of the Company’s factory and operations beginning
in early February, limited support from the Company’s employees, delayed access to raw material supplies and inability to deliver
products to customers on a timely basis. The travel restrictions imposed as a result
of the COVID-19 pandemic had a material negative impact on the Company’s operations. The Company is not able to send its sales
and marketing teams to visit our overseas customers and potential customers. And the Company’s promotion events like trade exhibitions
are limited due to travel restrictions in China. Under normal circumstances, the Company’s management regularly travels from Hong
Kong to the Shenzhen office and Xinxing factory. The inability to travel regularly has affected the Company’s operations. The extent
to which COVID-19 negatively impacts our business results is highly uncertain and cannot be accurately predicted. The magnitude of this
negative effect on the continuity of our business operation and supply chains in China remains uncertain. These uncertainties impede
our ability to conduct our daily operations and could materially and adversely affect our business, financial condition and results of
operations. The Company did not record any asset impairments, inventory charges or bad debt provision related to COVID-19 during the
year ended March 31, 2021 (2020: $nil). However, if the customer demand is persistently weak in coming months or we are instructed to
suspend the operations of our plants in PRC, the Company may need to record such charges. The significant accounting policies are
as follows:
(a) Principles of consolidation The consolidated financial statements include
the financial statements of the Company and its subsidiaries after elimination of inter-company accounts and transactions. Acquisitions of companies have been consolidated
from the date on which control of the net assets and operations was transferred to the Company. Acquisitions of companies are accounted
for using the purchase method of accounting.
(b) Cash and cash equivalents Cash and cash equivalents are short-term,
highly liquid investments with original maturities of three months or less. Cash equivalents are stated at cost, which approximates fair
value because of the short-term maturity of these instruments. The Company has no cash equivalents as of March 31, 2020 and 2021.
(c) Inventories Inventories are stated at the lower of
cost, as determined on a first-in, first-out basis, or net realizable value. Costs of inventories include purchase and related costs incurred
in bringing the products to their present location and condition. Net realizable value is the estimated selling price in the ordinary
course of business, less reasonably predictable costs of completion, disposal and transportation. The Company routinely reviews its inventories
for their salability and for indications of obsolescence to determine if inventory carrying values are higher than net realizable value.
Some of the significant factors the Company considers in estimating the net realizable value of its inventories include the likelihood
of changes in market and customer demand and expected changes in market prices for its inventories.
(d) Trade receivables and allowance for expected credit losses Trade receivables are recorded at
the invoiced amount, net of allowances for doubtful accounts and sales returns, if any. The allowance for doubtful accounts is the Company’s
best estimate of the amount of probable credit losses in the Company’s existing trade receivables. Bad debt expense is included
in administrative and general expenses. The Company recognizes an allowance
for expected credit losses to ensure accounts and other receivables are not overstated due to uncollectibility. Allowance for doubtful
receivables is maintained for all customers based on a variety of factors, including the length of time the receivables are past due,
significant one-time events and historical experience. An additional allowance for individual accounts is recorded when the Company becomes
aware of customers’ or other debtors’ inability to meet their financial obligations, such as bankruptcy filings or deterioration
in the customer’s or other debtor’s operating results or financial position. If circumstances related to customers or debtors
change, estimates of the recoverability of receivables will be further adjusted.
(e) Income taxes and deferred income taxes Amounts in the consolidated financial statements
related to income taxes are calculated using the principles of Accounting Standards Codification (“ASC”) 740 and Accounting
Standards Updates (“ASU”) 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward,
a Similar Tax Loss, or a Tax Credit Carryforward Exists” The Company complies with ASC 740 “Income
Taxes”
(f) Intangible assets Land use rights held by the Company are
included in intangible assets. The granted useful life of the land use rights is 50 years. They are stated at cost and amortized on a
straight-line basis over a maximum period of 30 years, in accordance with the business licenses expiring in 2024.
(g) Property, plants and equipment, net
(i) Property, plant and equipment are stated at cost less accumulated depreciation. Leasehold land and buildings are depreciated on a straight-line basis over 15 to 66 years, representing the shorter of the remaining term of the lease or the expected useful life to the Company.
(ii) Other categories of property, plant and equipment are carried at cost and depreciated using the straight-line method over their expected useful lives to the Company. The principal estimated useful lives for depreciation are:
Plant and machinery - 10 years
Furniture, fixtures and equipment - 5 to 10 years
Motor vehicles - 5 years
(iii) Assets under construction are not depreciated until construction is completed and the assets are ready for their intended use.
(iv) The cost of major improvements and betterments is capitalized, whereas the cost of maintenance and repairs is expensed in the year when it is incurred.
(v) Any gain or loss on disposal is included in the consolidated statements of operations and comprehensive income.
(h) Impairment of long-lived assets including intangible assets Long-lived assets held and used by the
Company and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of such assets may not be recoverable. The Company evaluates recoverability of assets to be held and used by comparing the carrying amount
of an asset to future net undiscounted cash flows to be generated by the asset. If such assets are considered to be impaired, the impairment
loss is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets calculated using a discounted
future cash flows analysis. Provisions for impairment made on other long-lived assets are disclosed in the consolidated statements of
operations and comprehensive income.
(i) Financial instrument at amortized cost Held-to-maturity debt securities are purchased
from a financial institution and pledged as collateral for certain secured bank loans, which are stated at amortized cost. Interest income,
including amortization of the premium and discount arising at acquisition, are included in earnings.
(j) Financial instruments at fair value The Company complies with ASC 820, “Fair
Value Measurements” (“ASC 820”). ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair
value and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows: Level 1-Inputs are unadjusted quoted prices
in active markets for identical assets or liabilities available at the measurement date. Level 2-Inputs are unadjusted quoted prices
for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are
not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data. Level 3-Inputs are unobservable inputs
which reflect the reporting entity's own assumptions on what assumptions the market participants would use in pricing the asset or liability
based on the best available information.
(k) Leases The Company determines if an arrangement
is a lease at inception of the contract. Leases are recorded in “right-of-use (ROU) assets” and "lease liabilities"
in the Company's consolidated balance sheets. ROU assets represent the Company’s
right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments
arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments
over the lease term. For leases in which the rate implicit in the lease is not readily determinable, the Company uses its incremental
borrowing rate based on the information available at commencement date for determining the present value of lease payments. Lease term
includes the effects of options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
Lease expense for operating lease arrangements is recognized on a straight-line basis over the lease term. On April 1, 2019, the date of initial application,
the Company adopted, “ Leases The adoption resulted in the recognition
of ROU assets of $407,000 and lease liabilities of $407,000 for operating leases as of April 1, 2019. The adoption had no impact on opening
balance of accumulated deficit. Refer to note 11 to the consolidated financial statements for details.
(l) Revenue recognition Effective April 1, 2018, the Company adopted
the new guidance of ASC Topic 606, “Revenue from Contracts with Customers (Topic 606)” “Revenue Recognition” Product sales The Company’s revenue from contracts
with customers is derived from product revenue principally from the sales of electronic scales and pet electronic products directly to
customers. The Company sells goods to customers based on purchase orders received from the customers. The Company has determined there
is one performance obligation for each model included in the purchase orders. The performance obligation is considered to be met and revenue
is recognized when the customer obtains control of the goods, which is generally the point at which products are leaving the ports of
Hong Kong, Shenzhen or Nansha (Guangzhou), or when risks and rewards are transferred to the customer. The Company did not recognize any
revenue from contracts with customers for performance obligations satisfied over time during the year ended March 31, 2021. Return rights The Company does not generally provide
its customers with a right of return or production protection. Each customer is required to perform a product quality check before accepting
delivery of goods. The Company provides to certain customers an additional one to two percent of the quantity of certain products ordered
in lieu of a warranty, which is recognized as cost of sales when these products are shipped to customers from the Company’s facilities. During the year ended March 31, 2020, the
Company began to sell its products through Amazon’s online platform. Customers purchasing products through Amazon have a 30-day
right of return from the date of receipt of the product. The Company recorded a refund liability of approximately $29,000 at March 31,
2021 (2020: $69,000; 2019: $nil) for these expected returns, which was based on the average monthly returns received for Amazon sales. Value-added taxes and surcharges The Company presents revenue net of value-added
taxes (“VAT”) and surcharges incurred. Surcharge are sales related taxes representing the City Maintenance and Construction
Tax and Education Surtax. VAT, business taxes and surcharges collected from customers, net of VAT paid for purchases, are recorded as
a liability in the consolidated balance sheets until these are paid to the tax authorities. Outbound freight and handling costs The Company accounts for product outbound
freight and handling costs as fulfillment activities and presents the associated costs in selling, general and administrative expenses
in the period in which it sells the product. Disaggregation of revenue The Company disaggregates its revenue from
different types of contracts with customers by principal product categories, as the Company believes it best depicts the nature, amount,
timing and uncertainty of its revenue and cash flows. See Note 19 for product revenues by segment. Contract balances The Company did not recognize any contract
asset as of March 31, 2020 and March 31, 2021. The timing between the recognition of revenue and receipt of payment is not significant.
The Company’s contract liabilities consist of deposits received from customers. As of March 31, 2020 and 2021, the balances of the
contract liabilities are approximately $12,000 and $317,000, respectively. All contract liabilities at the beginning of the year ended
March 31, 2021 were recognized as revenue during the year ended March 31, 2021 and all contract liabilities as of the end of the year
ended March 31, 2021 are expected to be realized in the following year. Lease income includes minimum rents which
are recognized on an accrual basis over the terms of the related leases on a straight-line basis. Lease revenue recognition commences
when the lessee is given possession of the leased space and there are no contingencies offsetting the lessee’s obligation to pay
rent.
(m) Research and development costs Research and development costs include
salaries, utilities and contractor fees that are directly attributable to the conduct of research and development progress primarily related
to the development of new design of products. Research and development costs are expensed as incurred. Research and development costs
of approximately $175,000, $213,000 and $229,000 were charged to operations for the years ended March 31, 2019, 2020 and 2021, respectively.
(n) Advertising Advertising costs are expensed as incurred
and are included within selling, general and administrative expenses. Advertising costs were approximately $21,000, $103,000 and $30,000
for the fiscal years ended March 31, 2019, 2020 and 2021, respectively.
(o) Foreign currency translations
(i) The Company’s functional currency is the United States dollar. Transactions denominated in non-United States dollar currencies of foreign subsidiaries where the United States dollar is the functional currency are translated into United States dollars at the exchange rates existing at date of transaction. The translation of local currencies into United States dollars at the balance sheet date creates transaction adjustments which are included in net income. Exchange differences are recorded in the statements of operations and comprehensive income.
(ii) The financial statements of foreign subsidiaries, where non-United States dollar currencies are the functional currencies, are translated into United States dollars using exchange rates in effect at period end for assets and liabilities and average exchange rates during each reporting period for the statement of operations. Adjustments resulting from translation of these financial statements are reflected as a separate component of stockholders’ equity in accumulated other comprehensive income.
(p) Stock options and warrants Stock options have been granted to employees,
directors and non-employee directors. Upon exercise of the options, a holder can acquire shares of common stock of the Company at an exercise
price determined by the board of directors. The options are exercisable based on the vesting terms stipulated in the option agreements
or plan. The Company follows the guidance of ASC
718, “ Accounting for Stock Options and Other Stock-Based Compensation .
(q) Fair value of financial instruments The carrying amounts of financial instruments
including cash and cash equivalents, trade receivables, net, other receivables, deposits and prepayments, other current assets, accounts
payable and accrued charges and deposits, and other current liabilities approximate fair value due to the relatively short-term maturity
of these instruments. The carrying value of long-term debt approximates fair value based on prevailing borrowing rates currently available
for loans with similar terms and maturities.
(r) Treasury stock The Company periodically retires treasury
shares that it acquires through share repurchases and returns those shares to the status of authorized but unissued. The Company accounts
for treasury stock transactions under the cost method. For each reacquisition of common stock, the number of shares and the acquisition
price for those shares is added to the existing treasury stock count and total value, respectively, and recognized as a deduction from
equity. When treasury shares are retired, the Company’s policy is to allocate the excess of the repurchase price over the par value
of shares acquired to additional paid-in capital, with any remaining amount being charged to retained earnings. Recently adopted accounting pronouncements In June 2016, the FASB issued ASU 2016-13,
"Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" In August 2018, the FASB issued ASU 2018-13,
“Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,” “Fair Value Measurement.” In October 2018, the FASB issued ASU No.
2018-17, “Consolidation: Targeted Improvements to Related Party Guidance for Variable Interest Entities,” In November 2018, the FASB issued ASU No.
2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” Recent accounting pronouncements
not yet adopted In December 2019, the FASB issued ASU No.
2019-12, “ Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes In October 2020, the FASB issued ASU No.
2020-10, "Codification Improvements" We believe there is no additional new accounting
guidance adopted, but not yet effective that is relevant to the readers of our financial statements. However, there are numerous new proposals
under development which, if and when enacted, may have a significant impact on our financial reporting. |
