Huawei 2015 Annual Report Download - page 68

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an adverse effect on the debtor, and allowances
are recorded for estimated losses. If the financial
condition of customers were to deteriorate or
improve, additional allowances or reversals may
be required in future periods.
(c) Net realisable value of inventories
The net realisable value of inventories is the
estimated selling price in the ordinary course of
business, less the estimated costs of completion
and the estimated costs necessary to make the
sale. These estimates are based on the current
market condition and the historical experience
of distributing and selling products of similar
nature. It could change significantly as a result of
competitor actions in response to severe industry
cycles or other changes in market condition.
Management will reassess the estimations at the
end of each reporting period.
(d) Depreciation and amortisation
Property, plant and equipment are depreciated
on a straight-line basis over the estimated useful
lives, after taking into account the estimated
residual value. Intangible assets with finite
useful life are amortised on a straight-line basis
over the estimated useful lives. Both the period
and method of depreciation and amortisation
are reviewed annually. The depreciation and
amortisation expense for future periods is
adjusted if there are significant changes, such as
operational efficiency or changes in technologies,
from previous estimates.
(e) Impairment losses of long-lived assets
The carrying amounts of long-lived assets
(including goodwill) are reviewed periodically
in order to assess whether the recoverable
amounts have declined below the carrying
amounts. In order to determine the recoverable
amount, the Group uses assumptions and
develops expectations, which requires significant
judgement relating to the definition of units
generating cash flows. The Group uses all readily
available information in determining an amount
that is a reasonable approximation of recoverable
amount, including estimates based on reasonable
and supportable assumptions and projections
of production volume, sales price, amount of
operating costs, discount rate and growth rate.
(f) Income tax
The Group is subject to income taxes in various
jurisdictions. Significant judgement is required
in determining the worldwide provision for
income taxes. There are many transactions
and calculations for which the ultimate tax
determination is uncertain during the ordinary
course of business. The Group recognises
liabilities based on estimates of whether
additional taxes will eventually be due. 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.
(g) Provision for warranties
As explained in note 27, the Group makes
provision for warranties in respect of its products,
taking into account the Group's recent claim
experience and anticipated claim rates for its
products. As the Group is continually upgrading
its product designs and launching new models,
it is possible that the recent claim experience is
not indicative of future claims that it will receive
in respect of past sales. Any increase or decrease
in the provision would affect income in future
years.
(h) Other provisions
The Group makes provisions for onerous
contracts, product sales, outstanding litigations
and claims based on project budgets, contract
terms, available knowledge and past experience.
The Group recognises provisions to the extent
that it has a present legal or constructive
obligation as a result of a past event; that it is
probable that an outflow of resources will be
required to settle the obligation; and that the
amount can be reliably estimated.