Lenovo 2009 Annual Report Download - page 93

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2008/09 Annual Report Lenovo Group Limited
91
2 Significant accounting policies (continued)
(r) Contingent liabilities
A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by
the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It
can also be a present obligation arising from past events that is not recognized because it is not probable that outflow
of economic resources will be required or the amount of obligation cannot be measured reliably.
A contingent liability is not recognized but is disclosed in the notes to the financial statements. When a change in the
probability of an outflow occurs so that the outflow is probable, it will then be recognized as a provision.
(s) Revenue
Revenue is measured at the fair value of the consideration received or receivable for the sale of goods and services in
the normal course of the Group’s activities.
(i) Sale of goods
Revenue from sale of hardware, software and peripherals, and services and mobile devices, and is recognised, net
of value-added tax, an allowance for estimated returns, rebates and discounts, when both ownership and risk of
loss are effectively transferred to customer, generally when there is a persuasive evidence of a sales arrangement
exists, the price is fixed or determinable, collectibility is reasonably assured and delivery has occurred. Revenue
from extended warranty contracts is deferred and amortized as earned over the contract period, generally of three
years. Revenue associated with undelivered elements is deferred and recorded when delivery occurs. Revenue
from provision of systems integration service and information technology technical service is recognized over the
term of contract or when services are rendered.
The Group defers the cost of shipped products awaiting revenue recognition until the goods are delivered and
revenue is recognized. In-transit product shipments to customers of US$77 million as at March 31, 2009 (2008:
US$30 million) are included in deposits, prepayments and other receivables in the balance sheet.
(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.