HTC 2014 Annual Report Download - page 126

• Financial information Financial information •
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Taxation
Income tax expense represents the sum of the tax
currently payable and deferred tax.
a. Current tax
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.
Adjustments of prior years’ tax liabilities are added to
or deducted from the current year’s tax provision.
b. Deferred tax
Deferred tax is recognized on temporary differences
between the carrying amounts of assets and liabilities
in the consolidated financial statements and the
corresponding tax bases used in the computation of
taxable profit. Deferred tax liabilities are generally
recognized for all taxable temporary differences.
Deferred tax assets are generally recognized for all
deductible temporary differences, unused loss carry
forward and unused tax credits for purchases of
machinery, equipment and technology, research and
development expenditures, and personnel training
expenditures to the extent that it is probable that
taxable profits will be available against which those
deductible temporary differences can be utilized.
Such deferred tax assets and liabilities are not
recognized if the temporary difference arises from
goodwill or from the initial recognition (other than in
a business combination) of other assets and liabilities
in a transaction that affects neither the taxable profit
nor the accounting profit.
Deferred tax liabilities are recognized for taxable
temporary differences associated with investments
in subsidiaries and associates, and interests in
joint ventures, except where the Company is able
to control the reversal of the temporary difference
and it is probable that the temporary difference will
not reverse in the foreseeable future. Deferred tax
assets arising from deductible temporary differences
associated with such investments and interests are
only recognized to the extent that it is probable that
there will be sufficient taxable profits against which to
utilize the benefits of the temporary differences and
they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed
at the end of each reporting period and reduced to
the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of
the asset to be recovered. A previously unrecognized
deferred tax asset is also reviewed at the end of each
reporting period and recognized to the to the extent
that it has become probable that future taxable profit
will allow the deferred tax asset to be recovered.
Deferred tax liabilities and assets are measured at
the tax rates that are expected to apply in the period
in which the liability is settled or the asset realized,
based on tax rates (and tax laws) that have been
enacted or substantively enacted by the end of the
reporting period. The measurement of deferred tax
liabilities and assets reflects the tax consequences
that would follow from the manner in which the
Company expects, at the end of the reporting period,
to recover or settle the carrying amount of its assets
and liabilities.
c. Current and deferred tax for the year
Current and deferred tax are recognized in profit
or loss, except when they relate to items that are
recognized in other comprehensive income or directly
in equity, in which case, the current and deferred tax
are also recognized in other comprehensive income
or directly in equity respectively. Where current tax
or deferred tax arises from the initial accounting for a
business combination, the tax effect is included in the
accounting for the business combination.
Accrued Marketing Expenses
The Company accrues marketing expenses on the
basis of agreements 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.
Treasury Stock
When the Company acquires its outstanding shares
that have not been disposed or retired, treasury stock is
stated at cost and shown as a deduction in stockholders’
equity. When treasury shares are sold, if the selling price
is above the book value, the difference should be credited
to the capital surplus - treasury stock transactions. If
the selling price is below the book value, the difference
should first be offset against capital surplus from the same
class of treasury stock transactions, and the remainder,
if any, debited to retained earnings. The carrying value
of treasury stock is calculated using the weighted-
average approach in accordance with the purpose of the
acquisition.
As of December 31, 2014 and 2013, the carrying amounts
of accrued marketing and advertising expenses were
NT$20,168,664 thousand and NT$22,592,673 thousand,
respectively.
b. Allowances for doubtful debts
Receivables are assessed for impairment at the end of
each reporting period and considered impaired when
there is objective evidence that, as a result of one or more
events that occurred after the initial recognition of the
receivables, the estimated future cash flows of the asset
have been affected.
As of December 31, 2014 and 2013, the carrying amounts
of allowances for doubtful debts were NT$3,054,782
thousand and NT$3,050,907 thousand, respectively.
c. Impairment of tangible and intangible assets
other than goodwill
The Company measures the useful life of individual assets
and the probable future economic benefits in a specific
asset group, which depends on subjective judgment, asset
characteristics and industry, during the impairment
testing process. Any change in accounting estimates due
to economic circumstances and business strategies might
cause material impairment in the future.
The Company recognized impairment loss on tangible
and intangible assets other than goodwill for NT$373,257
thousand and NT$273,046 thousand for the years ended
December 31, 2014 and 2013, respectively.
d. Impairment of goodwill
Test of impairment on goodwill depends on the
subjective judgment of management. The management
uses subjective judgment to identify cash-generating
units, allocates assets and liabilities to cash-generating
units, allocates goodwill to cash-generating units, and
determines recoverable amount of a cash-generating unit.
As of December 31, 2014 and 2013, the carrying amounts
of goodwill were NT$0 thousand and NT$174,253
thousand, after deduction of accumulated impairment
losses of NT$887,037 thousand and NT$700,531
thousand, respectively. The Company recognized an
impairment loss on goodwill for NT$174,253 thousand
and NT$591,306 thousand for the years ended December
31, 2014 and 2013, respectively.
When the Company’s treasury stock is retired, the
treasury stock account should be credited, and the capital
surplus - premium on stock account and capital stock
account should be debited proportionately according to
the share ratio. The carrying value of treasury stock in
excess of the sum of its par value and premium on stock
should first be offset against capital surplus from the same
class of treasury stock transactions, and the remainder,
if any, debited to retained earnings. The sum of the par
value and premium on treasury stock in excess of its
carrying value should be credited to capital surplus from
the same class of treasury stock transactions.
5. CRITICAL ACCOUNTING
JUDGEMENTS AND KEY SOURCES OF
ESTIMATION UNCERTAINTY
In the application of the Company’s accounting policies,
which are described in Note 4, the management is required
to make judgments, estimates and assumptions about the
carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated
assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may
differ from these estimates.
The estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if
the revision affects only that period or in the period of the
revision and future periods if the revision affects both current
and future periods.
The following are the key assumptions concerning the future,
and other key sources of estimation uncertainty at the end
of the reporting period, that have a significant risk of causing
a material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
a. Accrued marketing and advertising expenses
The Company recognizes sale of goods as the conditions
are met. For information on the principles of revenue
recognition, please refer to Note 4 “revenue recognition”
section. The related marketing and advertising expenses
recognized as reduction of sales amount or as current
expenses are estimated on the basis of agreement, past
experience and any known factors. The Company reviews
the reasonableness of the estimation periodically.