HTC 2009 Annual Report Download - page 66

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Deferred Charges
Deferred charges are telephone installation charges, computer software costs and
deferred license fees. Installation charges and computer software are amortized
on a straight-line basis over 3 years, and deferred license fees, over 10 years.
Asset Impairment
If the recoverable amount of an asset is estimated to be less than its carrying
amount, the carrying amount of the asset is reduced to its recoverable
amount. An impairment loss is charged to earnings unless the asset is
carried at a revalued amount, in which case the impairment loss is treated as
a deduction to the unrealized revaluation increment.
If an impairment loss subsequently reverses, the carrying amount of the asset
is increased accordingly, but the increased carrying amount may not exceed
the carrying amount that would have been determined had no impairment
loss been recognized for the asset in prior years. A reversal of an
impairment loss is recognized in earnings, unless the asset is carried at a
revalued amount, in which case the reversal of the impairment loss is treated
as an increase in the unrealized revaluation increment. A reversal of an
impairment loss on goodwill is disallowed.
For long term equity investments for which the Company has significant
influence but with no control, the carrying amount (including goodwill) of each
investment is compared with its own recoverable amount for the purpose of
impairment testing.
Accrued Marketing Expenses
The Company accrues marketing expenses on the basis of agreements,
management¶s judgment, and any known factors that would significantly
affect the accruals. In addition, depending on the nature of relevant events,
the accrued marketing expenses are accounted for as an increase in
marketing expenses or as a decrease in revenues.
Reserve for Warranty Expenses
The Company provides warranty service for one to two years depending on
the contract with customers. The warranty liability is estimated on the basis
of management¶s evaluation of the products under warranty, past warranty
experience, and pertinent factors.
Product-related Costs
The cost of revenues consists of costs of goods sold, write-downs of
inventories and the reversal of write-downs. The provisions for product
warranty are estimated and recorded under cost of revenues when sales are
recognized.
Pension Plan
Pension cost under a defined benefit plan is determined by actuarial
valuations. Contributions made under a defined contribution plan are
recognized as pension cost during the year in which employees render
services.
Curtailment or settlement gains or losses on the defined benefit plan are
recognized as part of the net pension cost for the year.
Income Tax
The Company applies intra-year and inter-year allocations for its income tax,
whereby (1) a portion of income tax expense is allocated to the cumulative
effect of changes in accounting principles; and (2) deferred income tax assets
and liabilities are recognized for the tax effects of temporary differences,
unused loss carryforward and unused tax credits. Valuation allowances are
provided to the extent, if any, that it is more likely than not that deferred
income tax assets will not be realized. A deferred tax asset or liability is
classified as current or noncurrent in accordance with the classification of its
related asset or liability. However, if a deferred income tax asset or liability
does not relate to an asset or liability in the financial statements, then it is
classified as either current or noncurrent based on the expected length of
time before it is realized or settled.
Tax credits for purchases of machinery, equipment and technology, research
and development expenditures, and personnel training expenditures are
recognized using the flow-through method.
Adjustments of prior years¶ tax liabilities are added to or deducted from the
current year¶s tax provision.
According to the Income Tax Law, an additional tax at 10% of unappropriated
earnings is provided for as income tax in the year the stockholders approve to
retain the earnings.
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Bond Investments Not Quoted in An Active Market
Bond investments not quoted in an active market are stated at amortized cost
and are classified as current or noncurrent on the basis of their maturities.
Bond investments not quoted in an active market - current are investments
receiving fixed or determinable amounts. Other features of these bond
investments are as follows:
a. The bond investments have not been designated as at fair value through
profit or loss.
b. The bond investments have not been designated as available for sale.
Those investments that are noncurrent are classified as bond investment not
quoted in an active market - noncurrent under funds and investments.
Investments Accounted for by the Equity Method
Investments in which the Company holds 20 percent or more of the investees¶
voting shares or exercises significant influence over the investees¶ operating
and financial policy decisions are accounted for by the equity method.
Prior to January 1, 2006, the difference between the acquisition cost and the
Company¶s proportionate share in the investee¶s equity was amortized by the
straight-line method over five years. Effective January 1, 2006, pursuant to
the revised Statement of Financial Accounting Standard (SFAS) No. 5,
³Long-term Investments Accounted for by Equity Method´, the acquisition
cost is allocated to the assets acquired and liabilities assumed based on their
fair values at the date of acquisition, and the excess of the acquisition cost
over the fair value of the identifiable net assets acquired is recognized as
goodwill. Goodwill is not being amortized. The excess of the fair value of
the net identifiable assets acquired over the acquisition cost is used to reduce
the fair value of each of the noncurrent assets acquired (except for financial
assets other than investments accounted for by the equity method,
noncurrent assets held for sale, deferred income tax assets, prepaid pension
or other postretirement benefit) in proportion to the respective fair values of
the noncurrent assets, with any excess recognized as an extraordinary gain.
Effective January 1, 2006, the accounting treatment for the unamortized
investment premium arising on acquisitions before January 1, 2006 is the
same as that for goodwill and the premium is no longer being amortized.
For any investment discount arising on acquisitions before January 1, 2006,
the unamortized amount continues to be amortized over the remaining year.
Profits from downstream transactions with an equity-method investee are
eliminated in proportion to the Company¶s percentage of ownership in the
investee; however, if the Company has control over the investee, all the profits
are eliminated. Profits from upstream transactions with an equity-method
investee are eliminated in proportion to the Company¶s percentage of
ownership in the investee.
When the Company subscribes for its investee¶s newly issued shares at a
percentage different from its percentage of ownership in the investee, the
Company records the change in its equity in the investee¶s net assets as an
adjustment to investments, with a corresponding amount credited or charged
to capital surplus. When the adjustment should be debited to capital surplus,
but the capital surplus arising from long-term investments is insufficient, the
shortage is debited to retained earnings.
Properties
Properties are stated at cost less accumulated depreciation. Borrowing
costs directly attributable to the acquisition or construction of properties are
capitalized as part of the cost of those assets. Major additions and
improvements to properties are capitalized, while costs of repairs and
maintenance are expensed currently.
Assets held under capital leases are initially recognized as assets of the
Company at the lower of their fair value at the inception of the lease or the
present value of the minimum lease payments; the corresponding liability is
included in the balance sheet as obligations under capital leases. The
interest included in lease payments is expensed when paid.
Depreciation is calculated on a straight-line basis over the estimated service
lives of the assets plus one additional year for salvage value: buildings
(including auxiliary equipment) - 3 to 50 years; machinery and equipment - 3
to 5 years; office equipment - 3 to 5 years; transportation equipment - 5 years;
and leasehold improvements - 3 years.
Properties still in use beyond their original estimated useful lives are further
depreciated over their newly estimated useful lives.
The related cost (including revaluation increment) and accumulated
depreciation are derecognized from the balance sheet upon its disposal.
Any gain or loss on disposal of the asset is included in nonoperating gains or
losses in the year of disposal.
If the properties are leased to others, the related costs and accumulated
depreciation would be transferred from properties to other assets - assets
leased to others.
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