Lenovo 2008 Annual Report Download - page 92

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2 Significant accounting policies (continued)
(s) Revenue (continued)
(ii) Other income
Interest income is recognized on a time-proportion basis using the effective interest method. When a receivable is
impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow
discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest
income. Interest income on impaired loans is recognized using the original effective interest rate.
Dividend income is recognized when the right to receive payment is established.
(t) Non-base manufacturing costs
Non-base manufacturing costs are costs that are periodic in nature as opposed to product specific. They are typically
incurred after the physical completion of the product and include items such as outbound freight for in-country finished
goods shipments, warranty costs, engineering changes, storage and warehousing cost, and contribute to bringing
inventories to their present location and condition. Non-base manufacturing costs enter into the calculation of gross
margin but are not inventoriable costs.
(u) Employee benefits
(i) Pension obligations
The Group operates various pension schemes. The schemes are generally funded through payments to insurance
companies or trustee-administered funds, determined by periodic actuarial calculations. The Group has both
defined benefit and defined contribution plans. A defined benefit plan is a pension plan that defines an amount of
pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age,
years of service and compensation. A defined contribution plan is a pension plan under which the Group pays fixed
contributions into a separate entity. The benefit payable to the employee is the amount of the contributions plus the
accumulated investment returns.
The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the
defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for
unrecognized past service costs. The defined benefit obligation is calculated annually by independent actuaries using
the projected unit credit method. The present value of the defined benefit obligation is determined by discounting
the estimated future cash outflows using interest rates of high-quality corporate or government bonds that are
denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to
the terms of the related pension liability.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized
in the income statement in the year they occur.
For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance
plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the
contributions have been paid. The contributions are recognized as employee benefit expense when they are due
and are reduced by contributions forfeited by those employees who leave the scheme prior to vesting fully. Prepaid
contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is
available.
The Group’s contributions to local municipal government retirement schemes in connection with retirement benefit
schemes in the Mainland of China (“Chinese Mainland”) are expensed as incurred. The local municipal governments
in the Chinese Mainland assume the retirement benefit obligations of the qualified employees.
Lenovo Group Limited • Annual Report 2007/08
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