HTC 2011 Annual Report Download - page 78

Company recognizes a financial asset or a financial liability on
its balance sheet when the Company becomes a party to the
contractual provisions of the financial instrument. A financial
asset is derecognized when the Company has lost control of its
contractual rights over the financial asset. A financial liability
is derecognized when the obligation specified in the relevant
contract is discharged, cancelled or expired.
Financial instruments at FVTPL are initially measured at fair value
plus transaction costs that are directly attributable to the acquisition.
At each balance sheet date subsequent to initial recognition,
financial assets or financial liabilities at FVTPL are remeasured at
fair value, with changes in fair value recognized directly in profit
or loss in the year in which they arise. Cash dividends received
subsequently (including those received in the year of investment) are
recognized as income for the year. On derecognition of a financial
asset or a financial liability, the difference between its carrying
amount and the sum of the consideration received and receivable
or consideration paid and payable is recognized in profit or loss. All
regular way purchases or sales of financial assets are recognized and
derecognized on a trade date basis.
A derivative that does not meet the criteria for hedge accounting
is classified as a financial asset or a financial liability held
for trading. If the fair value of the derivative is positive, the
derivative is recognized as a financial asset; otherwise, the
derivative is recognized as a financial liability.
Fair values of financial assets and financial liabilities at the
balance sheet date are determined as follows: publicly traded
stocks - at closing prices; open-end mutual funds - at net asset
values; bonds - at prices quoted by the Taiwan GreTai Securities
Market; and financial assets and financial liabilities without
quoted prices in an active market - at values determined using
valuation techniques.
5. Available-for-sale Financial Assets
Available-for-sale financial assets are initially measured at fair
value plus transaction costs that are directly attributable to the
acquisition. At each balance sheet date subsequent to initial
recognition, available-for-sale financial assets are remeasured
at fair value, with changes in fair value recognized in equity until
the financial assets are disposed of, at which time, the cumulative
gain or loss previously recognized in equity is included in profit or
loss for the year. All regular way purchases or sales of financial
assets are recognized and derecognized on a trade date basis.
The recognition, derecognition and the fair value bases of
available-for-sale financial assets are the same as those for
financial assets at FVTPL.
Cash dividends are recognized on the stockholders' resolutions,
except for dividends distributed from the pre-acquisition
profit, which are treated as a reduction of investment cost.
Stock dividends are not recognized as investment income
but are recorded as an increase in the number of shares. The
total number of shares subsequent to the increase is used for
recalculation of cost per share.
An impairment loss is recognized when there is objective
evidence that the financial asset is impaired. Any subsequent
decrease in impairment loss for an equity instrument classified as
available-for-sale is recognized directly in equity.
6. Revenue Recognition, Accounts Receivable and
Allowance for Doubtful Account
Revenue from sales of goods is recognized when the Company
has transferred to the buyer the significant risks and rewards
of ownership of the goods because the earnings process has
been completed and the economic benefits associated with the
transaction have been realized or are realizable.
Revenue is measured at the fair value of the consideration
received or receivable and represents amounts agreed between
the Company and the customers for goods sold in the normal
course of business, net of sales discounts and volume rebates.
For trade receivables due within one year from the balance sheet
date, as the nominal value of the consideration to be received
approximates its fair value and transactions are frequent, fair
value of the consideration is not determined by discounting all
future receipts using an imputed rate of interest.
An allowance for doubtful accounts is provided on the basis of a
review of the collectibility of accounts receivable. The Company
assesses the probability of collections of accounts receivable
by making an aging analysis of the outstanding receivables and
assessing the value of the collateral provided by customers.
As discussed in Note 4 to the financial statements, on January
1, 2011, the Company adopted the third-time revised Statement
of Financial Accounting Standards (SFAS) No. 34 - "Financial
Instruments: Recognition and Measurement." One of the main
revisions is that the impairment of receivables originated by
the Company should be covered by SFAS No. 34. Accounts
receivable are assessed for impairment at the end of each
reporting period and considered to be impaired when there is
objective evidence that, as a result of one or more events that
occurred after the initial recognition of the accounts receivable,
the estimated future cash flows of the asset have been affected.
Objective evidence of impairment could include:
(1) Significant financial difficulty of the debtor;
(2) Accounts receivable becoming overdue; or
(3) It becoming probable that the debtor will enter into
bankruptcy or financial reorganization.
Accounts receivable that are assessed not to be impaired
individually are further assessed for impairment on a collective
basis. Objective evidence of impairment for a portfolio
of accounts receivable could include the Company's past
experience of collecting payments, an increase in the number
of delayed payments, as well as observable changes in national
HTC CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2010 AND 2011
(In Thousands, Unless Stated Otherwise)
(1) ORGANIZATION AND OPERATIONS
HTC Corporation (the "Company") was incorporated on May 15,
1997 under the Company Law of the Republic of China to design,
manufacture and sell smart handheld devices. In 1998, the Company
had an initial public offering and, in March 2002, the Company's stock
was listed on the Taiwan Stock Exchange. On November 19, 2003,
the Company started trading Global Depositary Receipts on the
Luxembourg Stock Exchange.
The Company had 10,843 and 14,506 employees as of December 31,
2010 and 2011, respectively.
(2) SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in conformity with
the Guidelines Governing the Preparation of Financial Reports by
Securities Issuers, Business Accounting Law, Guidelines Governing
Business Accounting, and accounting principles generally accepted
in the Republic of China ("ROC"). Significant accounting policies are
summarized as follows:
1. Foreign Currencies
The financial statements of foreign operations are translated into
New Taiwan dollars at the following exchange rates:
(1) Assets and liabilities - at exchange rates prevailing on the
balance sheet date;
(2) Stockholders' equity - at historical exchange rates;
(3) Dividends - at the exchange rate prevailing on the dividend
declaration date; and
(4) Income and expenses - at average exchange rates for the year.
Exchange differences arising from the translation of the financial
statements of foreign operations are recognized as a separate
component of stockholders' equity. Such exchange differences
are recognized as gain or loss in the year in which the foreign
operations are disposed of.
Nonderivative foreign-currency transactions are recorded in New
Taiwan dollars at the rates of exchange in effect when the transactions
occur. Exchange differences arising from the settlement of foreign-
currency assets and liabilities are recognized as gain or loss.
At the balance sheet date, foreign-currency monetary assets and
liabilities are revalued using prevailing exchange rates and the
exchange differences are recognized in profit or loss.
At the balance sheet date, foreign-currency nonmonetary assets
(such as equity instruments) and liabilities that are measured at
fair value are revalued using prevailing exchange rates, with the
exchange differences treated as follows:
(1) Recognized in stockholders' equity if the changes in fair
value are recognized in stockholders' equity; and
(2) Recognized in profit and loss if the changes in fair value are
recognized in profit or loss.
Foreign-currency nonmonetary assets and liabilities that are
carried at cost continue to be stated at exchange rates at the
trade dates.
If the functional currency of an equity-method investee is
a foreign currency, translation adjustments will result from
the translation of the investee's financial statements into
the reporting currency of the Company. These adjustments
are accumulated and reported as a separate component of
stockholders' equity.
2. Accounting Estimates
Under the above guidelines, law and principles, certain estimates
and assumptions have been used for the allowance for doubtful
accounts, allowance for loss on inventories, depreciation of
properties, income tax, royalty, pension cost, loss on pending
litigations, product warranties, bonuses to employees, etc.
Actual results may differ from these estimates.
For readers' convenience, the accompanying financial statements
have been translated into English from the original Chinese
version prepared and used in the ROC. If inconsistencies arise
between the English version and the Chinese version or if
differences arise in the interpretations between the two versions,
the Chinese version of the financial statements shall prevail.
However, the accompanying financial statements do not include
the English translation of the additional footnote disclosures
that are not required under ROC generally accepted accounting
principles but are required by the Securities and Futures Bureau
for their oversight purposes.
3. Current/Noncurrent Assets and Liabilities
Current assets include cash, cash equivalents, and those assets
held primarily for trading purposes or to be realized, sold or
consumed within one year from the balance sheet date. All other
assets such as properties and intangible assets are classified as
noncurrent. Current liabilities are obligations incurred for trading
purposes or to be settled within one year from the balance sheet
date. All other liabilities are classified as noncurrent.
4. Financial Assets/Liabilities at Fair Value through Profit
or Loss
Financial instruments classified as financial assets or financial
liabilities at fair value through profit or loss (FVTPL) include
financial assets or financial liabilities held for trading and
those designated as at FVTPL on initial recognition. The
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