HTC 2012 Annual Report Download - page 107

recognized as goodwill. Goodwill is not 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 non-current assets acquired (except for
financial assets other than investments accounted for
by the equity method, non-current assets held for sale,
deferred income tax assets, prepaid pension or other
postretirement benefit) in proportion to the respective
fair values of the non-current 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.
(14) 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 start 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 provided on a straight-line basis over
estimated useful lives in accordance with the tax law
and regulations in the Republic of China: buildings
and structures (including auxiliary equipment) - 3
to 50 years; machinery, computer and equipment
- 3 to 5 years; furniture and fixtures - 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 property disposal. Any gain or loss
on disposal of the asset is included in non-operating
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.
(15) 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.
(16) Deferred Charges
Deferred charges are computer software costs,
deferred license fees and the right to the use of the
land. Computer software are amortized on a straight-
line basis over 3 years; deferred license fees, over 5
years; and land use rights, over 50 years.
(17) 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 first treated as a reduction of the
unrealized revaluation increment, and any remaining
loss is charged to earnings. If an impairment loss
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
The amount of impairment loss recognized is the
difference between the asset carrying amount and
the present value of estimated future cash flows,
after taking into account the related collaterals and
guarantees, discounted at the receivable's original
effective interest rate.
The carrying amount of the accounts receivable
is reduced through the use of an allowance
account. When accounts receivable are considered
uncollectible, they are written off against the allowance
account. Recoveries of amounts previously written
off are credited to the allowance account. Changes
in the carrying amount of the allowance account are
recognized as bad debt in profit or loss.
(9) Inventories
Inventories consist of raw materials, supplies, finished
goods and work-in-process and are stated at the lower
of cost or net realizable value. Inventory write-downs
are made by item, except where it may be appropriate
to group similar or related items. Net realizable value
is the estimated selling price of inventories less all
estimated costs of completion and costs necessary to
make the sale. Inventories are recorded at weighted-
average cost on the balance sheet date.
(10) Held-to-maturity Financial Assets
Held-to-maturity financial assets are carried at amortized
cost using the effective interest method. Held-to-
maturity financial assets are initially measured at fair
value plus transaction costs that are directly attributable
to the acquisition. Profit or loss is recognized when the
financial assets are derecognized, impaired, or amortized.
All regular way purchases or sales of financial assets are
accounted for using a trade date basis.
An impairment loss is recognized when there is
objective evidence that the investment is impaired.
The impairment loss is reversed if an increase in
the investment’s recoverable amount is due to an
event that occurred after the impairment loss was
recognized; however, the adjusted carrying amount of
the investment may not exceed the carrying amount
that would have been determined had no impairment
loss been recognized for the investment in prior years.
(11) Hedge Accounting
Derivatives that are designated and effective as
hedging instruments are measured at fair value, with
subsequent changes in fair value recognized either in
profit or loss, or in stockholders' equity, depending on
the nature of the hedging relationship.
Hedge accounting recognizes the offsetting effects
on profit or loss of changes in the fair values of the
hedging instrument and the hedged item as follows:
a. Fair value hedge
The gain or loss from remeasuring the hedging
instrument at fair value and the gain or loss on the
hedged item attributable to the hedged risk are
recognized in profit or loss.
b. Cash flow hedge
The portion of the gain or loss on the hedging
instrument that is determined to be an effective hedge
is recognized in stockholders' equity. The amount
recognized in stockholders' equity is recognized in
profit or loss in the same year or years during which
the hedged forecast transaction or an asset or liability
arising from the hedged forecast transaction affects
profit or loss. However, if all or a portion of a loss
recognized in stockholders' equity is not expected to
be recovered, the amount that is not expected to be
recovered is reclassified to profit or loss.
c. Hedge of a net investment in a foreign operation
The portion of the gain or loss on the hedging
instrument that is determined to be an effective hedge
is recognized in stockholders' equity. The amount
recognized in stockholders' equity is recognized in
profit or loss on disposal of the foreign operation.
(12) 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 the same as 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.
(13) 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
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