Lenovo 2010 Annual Report Download - page 91

2009/10 Annual Report Lenovo Group Limited
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2009/10 Annual Report Lenovo Group Limited
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2 Significant accounting policies (continued)
(u) Revenue (continued)
(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.
(iii) Dividend income
Dividend income is recognized when the right to receive payment is established.
(v) 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.
(w) Employee benefits
(i) Pension 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 Group has no legal or constructive
obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the
benefits relating to employee service in the current and prior periods.
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.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are
charged or credited to other comprehensive income in the year they arise.
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 employer’s portion of voluntary 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.