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2008/09 Annual Report Lenovo Group Limited
90
NOTES TO THE FINANCIAL STATEMENTS (Continued)
2 Significant accounting policies (continued)
(p) Provisions
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined
by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with
respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using
a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the
obligation. The increase in the provision due to passage of time is recognized as interest expense.
(i) Warranty provision
The Group records warranty liabilities at the time of sale for the estimated costs that will be incurred under its basic
limited warranty. The specific warranty terms and conditions vary depending upon the product and the country in
which it was sold, but generally includes technical support, repair parts and labour associated with warranty repair
and service actions. The period ranges from one to three years. The Group reevaluates its estimates on a quarterly
basis to assess the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
(ii) Other provisions
Provisions for environmental restoration, restructuring costs and legal claims are recognized when: the Group has a
present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be
required to settle the obligation; and the amount can be reliably estimated. Restructuring costs provision comprises
lease termination penalties and employee termination payments. Provisions are not recognized for future operating
losses.
(q) Deferred taxation
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the financial statements. However, deferred income tax is not
accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination
that at the time of the transaction affects neither the accounting nor taxable profit or loss. Deferred income tax is
determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are
expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.
Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available
against which the temporary differences can be utilized.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associated companies,
except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the
temporary difference will not reverse in the foreseeable future.