Huawei 2011 Annual Report Download - page 31

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26
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Warranty Provision
The liability for product warranties was CNY1,962
million as of December 31, 2011, compared with
CNY1,556 million as of December 31, 2010. The
Company's products are generally covered by a warranty
for 12 months. The company accrues for warranty costs
as part of cost of sales based on associated material
costs, technical support labor costs, and associated
overheads.
The provision for product warranties issued for fiscal
years ended December 31, 2011 and December 31,
2010 was CNY2,449 million and CNY1,962 million
respectively.
If the company experiences an increase in warranty
claims compared with the historical experience, or if
the cost of servicing warranty claims is greater than
expected, the company's gross margin could be
adversely affected.
Income Tax
The company is subject to income taxes in China and
numerous foreign jurisdictions. Signicant judgment is
required in determining the consolidated provision for
income taxes.
During the ordinary course of business, there are many
transactions and calculations for which the ultimate tax
determination is uncertain. The company recognizes tax
liabilities for anticipated tax issues based on estimates
of whether additional taxes will eventually be due.
The company believes that its accruals for tax liabilities
are adequate for all open audit years based on its
assessment of many factors including past experiences
and interpretations of tax law. Deferred tax assets are
recognized to the extent that the assets can be utilized
based on the assessment of future taxable income.
Since the tax assessment relies on estimates and
assumptions and may involve a series of complex
judgments about future events, where the final tax
outcome of these matters is different from the amounts
that were initially recorded, such differences will impact
the income tax and deferred tax provisions for the
period in which such decision is made.
Management Discussion and Analysis