Lenovo 2010 Annual Report Download - page 89

2009/10 Annual Report Lenovo Group Limited
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2009/10 Annual Report Lenovo Group Limited
87
2 Significant accounting policies (continued)
(n) Share capital (continued)
The dividends on these convertible preferred shares are recognized in the income statement as interest expense.
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.
(o) 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.
(p) Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of
business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less
(or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective
interest method.
(q) 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 labor 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.