Lenovo 2009 Annual Report Download - page 91

2008/09 Annual Report Lenovo Group Limited
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2 Significant accounting policies (continued)
(m) Share capital
Ordinary shares, both voting and non-voting, are classified as equity. The unlisted non-voting ordinary shares have the
same rights as the listed voting ordinary shares save that the non-voting ordinary shares shall not carry any voting rights
until they are converted into listed ordinary shares.
Convertible preferred shares, which are mandatorily redeemable on a specific date, are classified as liabilities. The
dividends on these convertible preferred shares are recognized in the income statement as interest expense.
The fair value of the liability portion of convertible preferred shares is determined using a market interest rate for an
equivalent non-convertible bond. This amount is recorded as a liability on an amortized cost basis until extinguished on
conversion or maturity of the convertible preferred shares. The remainder of the proceeds is allocated to the conversion
option. This is recognized and included in shareholders’ equity, net of income tax effects.
Incremental costs directly attributable to the issue of new shares or exercise of options are shown in equity as a
deduction, net of tax, from the proceeds.
Where any group company purchases the Company’s equity share capital (treasury shares), the consideration paid,
including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the
Company’s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any
consideration received (net of any directly attributable incremental transaction costs and the related income tax effects)
is included in equity attributable to the Company’s equity holders.
(n) Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Transaction costs are incremental
costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability, including
fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities
exchanges, and transfer taxes and duties. Borrowings are subsequently stated at amortized cost; any difference
between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement over
the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date.
(o) Trade payables
Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective
interest method.