D-Link 2005 Annual Report Download - page 34
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D-LINK CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(h) Inventories
Inventories are stated at the lower of cost or market value. The market value of raw materials is
determined on the basis of replacement cost, and the market values of finished goods and work in
process are determined on the basis of net realizable value.
(i) Long-term equity investments
Long-term equity investments in publicly traded companies whereby D-Link, directly or
indirectly, owns less than 20 percent of the investee’s voting shares and is not able to exercise
significant influence over the investee’s operations and financial policies are accounted for by the
lower-of-cost-or-market method. However, if the shares of such long-term equity investments
are not traded publicly, they are accounted for by the cost method. If there is evidence indicating
that a decline in the value of such an investment is other than temporary, then the carrying
amount of the investment is reduced to reflect its net realizable value. The related loss is
recognized in the accompanying consolidated statements of income.
Long-term equity investments in which D-Link, directly or indirectly, owns between 20 percent
and 50 percent of the investee’s voting shares, or less than 20 percent of the investee’s voting
shares but is able to exercise significant influence over the investee’s operations and financial
policies, are accounted for by the equity method. The difference between the acquisition cost
and the net equity of the investee as of the acquisition date is deferred and amortized over five to
ten years using the straight-line method, and the amortization is recorded as investment income
or loss in the accompanying consolidated statements of income.
If an investee company issues new shares and the D-Link and subsidiaries do not acquire new
shares in a proportion to their original ownership percentage, the equity in the investee’s net
assets will be changed. The change in the equity interest shall be used to adjust the capital
surplus and long-term investment accounts.
All significant inter-company transaction gains or losses with investees accounted for under the
equity method are deferred. These gains or losses are recognized in the year that the gain or
loss is realized through a third-party transaction or over the remaining useful life of property,
plant and equipment.
(j) Property, plant and equipment
Property, plant and equipment are stated at cost. Costs associated with significant additions,
improvements, and replacements to property, plant and equipment are capitalized. Repairs and
maintenance are charged to expenses as incurred. Interest costs related to the construction of
property, plant and equipment are capitalized and included in the cost of the related asset.
Depreciation of property, plant and equipment of D-Link and its subsidiaries is provided for by
using the straight-line method over the estimated useful lives of the respective assets. Gains or
losses on the disposal of property, plant and equipment are accounted for as non-operating
income or expenses in the consolidated statements of income.