LG 2004 Annual Report Download - page 70

LG Electronics Inc.
Notes to Non-Consolidated Financial Statements
December 31, 2004 and 2003
Routine maintenance and repairs are charged to
current operations as incurred. Betterments and renewals
which enhance the value of the assets over their most recently
appraised value are capitalized.
The Company assesses the potential impairment of
property, plant and equipment when there is evidence that
events or changes in circumstances have made the recovery
of an asset’s carrying value to be unlikely, and recognizes an
impairment loss when the carrying value of an asset exceeds
the value of its future economic benefits. The carrying value of
the impaired assets is reduced to the estimated realizable
value, and an impairment loss is recorded as a reduction in the
carrying value of the related asset and charged to current
operations. However, the recovery of the impaired assets
would be recorded in current operations up to the cost of the
assets, net of accumulated depreciation before impairment,
when the estimated value of the assets exceeds the carrying
value after impairment.
Lease Transactions
Lease agreements that include a bargain purchase
option, result in the transfer of ownership at the end of the
lease term, have a term longer than 75% of the estimated
economic life of the leased property, or have a present value
of the minimum lease payments at the beginning of the lease
term amounting to more than 90% of the fair value of the
leased property, are accounted for as capital leases. Leases
that do not meet these criteria are accounted for as operating
leases, of which the total minimum lease payments are
charged to expense over the lease period on a straight-line
basis.
Research and Development Costs
Research costs are expensed as incurred.
Development costs directly relating to a new technology or
new products, for which the estimated future benefits are
probable, are recognized as intangible assets. Amortization of
development costs is computed using the straight-line method
over five years from the commencement of the commercial
production of the related products. Such costs are subject to
continual analysis of recoverability. In the event that such
amounts are not estimated to be recoverable, they are written
down to their net realizable value.
Intangible Assets
Intangible assets are stated at acquisition cost, net of
accumulated amortization. Acquisition cost is the total of the
production or purchase cost and other incidental expenses.
Amortization is computed using the straight-line method over
the estimated useful lives, which range from five to ten years.
The Company assesses the potential impairment of
intangible assets when there is evidence that events or
changes in circumstances have made the recovery of an
asset’s carrying value to be unlikely. An impairment loss is
recorded as a reduction in the carrying value of the related
asset and charged to current operations. However, the
recovery of the impaired assets would be recorded in current
operations up to the cost of the asset, net of amortization
before impairment, when the estimated value of the assets
exceeds the carrying value after impairment.
Borrowing Costs
Interest and other financial costs incurred on
borrowings used to acquire property, plant and equipment,
intangible assets and investments are all charged to expense
as incurred.