LG 2004 Annual Report Download - page 71

LG Electronics Inc.
Notes to Non-Consolidated Financial Statements
December 31, 2004 and 2003
LG ELECTRONICS ANNUAL REPORT 2004
070
071
Discounts (Premiums) on Debentures
Discounts (premiums) on debentures are amortized
using the effective interest rate method over the repayment
period of the debentures. The amortized amount is included in
interest expense.
Treasury Stock
Treasury stock are stated at cost and recorded as a
capital adjustment in shareholders’ equity. Gain on disposal of
treasury stock is recorded as a capital surplus. Any loss on
disposal of treasury stock is offset against prior gains on
disposal of treasury stock included in capital surplus. The
remaining loss is offset against retained earnings.
Product Warranty
The Company provides warranties against product
defects for a specified period of time after the sale. Estimated
costs of product warranties are charged to current operations
at the time of sale and are included in the accompanying non-
consolidated balance sheets as a product warranty reserve.
Accrued Severance Benefits
Employees and directors with at least one year of
service are entitled to receive a lump-sum severance payment
upon termination of their employment with the Company,
based on their length of service and rate of pay at the time of
termination. Accrued severance benefits represent the amount
which would be payable assuming all eligible employees and
directors were to terminate their employment as of the
balance sheet date.
Contributions made under the National Pension Plan
and severance insurance deposits are deducted from accrued
severance benefits. Contributed amounts are refunded from
the National Pension Plan and the insurance companies to
employees upon their retirement.
Income Taxes
The Company recognizes deferred income taxes for
anticipated future tax consequences resulting from temporary
differences between amounts reported for financial reporting
and income tax purposes. Deferred income tax assets and
liabilities are computed on such temporary differences by
applying enacted statutory tax rates applicable to the years
when such differences are expected to be reversed. Deferred
income tax assets are recognized to the extent that it is almost
certain that such deferred income tax assets will be realized.
The total income tax provision includes current tax expenses
under applicable tax regulations and the change in the
balance of deferred income tax assets and liabilities.
Tax credits for investments and development of
research and manpower are accounted for using the flow-
through method, whereby income taxes are reduced in the
period the assets that gave rise to such credits are placed in
service. To the extent such credits are not currently utilized,
deferred income tax assets, subject to realizability as stated
above, are recognized for the carry-forward amount.
Sale of Accounts and Notes Receivable
The Company sells certain accounts or notes
receivable to financial institutions at a discount, and accounts
for the transactions as a sale of the receivables, if the rights
and obligations relating to the receivables are substantially
transferred to the buyers. The losses from the sale of the
receivables are charged to current operations as incurred.