Lenovo 2009 Annual Report Download - page 94

2008/09 Annual Report Lenovo Group Limited
92
NOTES TO THE FINANCIAL STATEMENTS (Continued)
2 Significant accounting policies (continued)
(u) Employee benefits
(i) Pensio n 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.
Effective from the year ended March 31, 2009, actuarial gains and losses arising from experience adjustments and
changes in actuarial assumptions are charged or credited to equity in the year they occur. In the previous years,
these actuarial gains or losses were recognized in the income statement. The prior periods’ results have not been
restated as the change does not have a significant impact.
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.
(ii) Post-employment medical benefits
The Group operates a number of post–employment medical benefit schemes, the largest being in the United
States. The method of accounting, assumptions and the frequency of valuations for material schemes are similar
to those used for defined benefit pension schemes. The entitlement to these benefits is usually conditional on the
employee remaining in service up to retirement age and the completion of a minimum service period. The expected
costs of these benefits are accrued over the period of employment using an accounting methodology similar to that
for defined benefit pension plans. Actuarial gains and losses arising from experience adjustments and changes in
actuarial assumptions are charged or credited to equity in the year they arise. In the previous years, these actuarial
gains or losses were recognized in the income statement. The prior periods’ results have not been restated as the
change does not have a significant impact.