HTC 2011 Annual Report Download - page 99

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 first recognized as
gains to the extent that an impairment loss on the same revalued
asset was previously charged to earnings. Any excess amount 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 on which the Company has
significant influence but over which the Company has no control,
the carrying amount (including goodwill) of each investment is
compared with its own recoverable amount for the purpose of
impairment testing.
17. 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.
18. Warranty Provisions
The Company provides warranty service for one year 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.
19. Provisions for Contingent Loss on Purchase Orders
The provision for contingent loss on purchase orders is estimated
after taking into account the effects of changes in the product
market, in inventory management and in the Company's purchases.
20. Product-related Costs
The cost of products consists of costs of goods sold, warranty
expenses, contingent loss on purchase orders, and inventory
write-downs and reversal of these write-downs.
21. 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.
22. Income Tax
The Company applies the intra-year and inter-year allocation
methods to its income tax, whereby (1) a portion of income
tax expense is allocated to the cumulative effect of changes
in accounting principles or charged or credited directly to
stockholders' equity; 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 income 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.
If the Company can control the timing of the reversal of a
temporary difference arising from the difference between the
book value and the tax basis of a long-term equity investment
in a foreign subsidiary or joint venture and if the temporary
difference is not expected to reverse in the foreseeable future
and will, in effect, exist indefinitely, then a deferred income tax
liability or asset is not recognized.
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.
All subsidiaries file income tax returns based on the regulations
of their respective local governments. In addition, there is no
material difference in the accounting principles on income taxes
between the parent company and those of its subsidiaries.
23. Stock-based Compensation
Employee stock options granted on or after January 1, 2008 are
accounted for under Statement of Financial Accounting Standards
No. 39 - "Share-based Payment." Under the statement, the value
of the stock options granted, which is equal to the best available
estimate of the number of stock options expected to vest multiplied
by the grant-date fair value, is expensed on a straight-line basis
over the vesting period, with a corresponding adjustment to
capital surplus - employee stock options. The estimate is revised if
subsequent information indicates that the number of stock options
expected to vest differs from previous estimates.
11. Financial Assets Carried at Cost
Investments in equity instruments with no quoted prices in
an active market and with fair values that cannot be reliably
measured, such as non-publicly traded stocks and stocks traded
in the emerging stock market, are measured at their original
cost. The accounting treatment for dividends on financial assets
carried at cost is similar to that for dividends on available-for-sale
financial assets. An impairment loss is recognized when there is
objective evidence that the asset is impaired. A reversal of this
impairment loss is disallowed.
12. 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.
The acquisition cost is allocated to the assets acquired and liabilities
assumed on the basis of their fair values at the date of acquisition,
and the acquisition cost in excess of the fair value of the identifiable
net assets acquired is recognized as goodwill. Goodwill is not being
amortized. The fair value of the net identifiable assets acquired in
excess of 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.
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.
13. Properties
Properties are stated at cost less accumulated depreciation
and accumulated impairment losses. 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) accumulated
depreciation, accumulated impairment losses and any unrealized
revaluation increment are derecognized from the balance sheet
upon property 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.
14. Intangible Assets
Intangible assets acquired are initially recorded at cost and are
amortized on a straight-line basis over their estimated useful
lives. Effective January 1, 2006, based on a newly released SFAS
No. 37 - "Intangible Assets," goodwill arising on acquisitions of
other companies is no longer amortized and instead is tested for
impairment annually. If circumstances show that the fair value of
goodwill has become lower than its carrying amount, an impairment
loss is recognized. A reversal of this impairment loss is not allowed.
15. Deferred Charges
Deferred charges are telephone installation charges, computer
software costs, deferred license fees and the right to the use
of the land. Installation charges and computer software are
amortized on a straight-line basis over 3 years; deferred license
fees, over 10 years; and land use rights, over 50 years.
16. 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 and any remaining loss is
charged to earnings.
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