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2009/10 Annual Report Lenovo Group Limited
90
NOTES TO THE FINANCIAL STATEMENTS (continued)
2009/10 Annual Report Lenovo Group Limited
90
2 Significant accounting policies (continued)
(w) Employee benefits (continued)
(ii) Post-employment medical benefits
The Group operates a number of post–employment medical benefit schemes, the largest being in the United
States. 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 other comprehensive income in the year they arise. The obligations of
the schemes in the United States are valued annually by independent qualified actuaries.
(iii) Long-term incentive program
The Group operates a long-term incentive program to recognize employees’ individual and collective
contributions, and includes three types of awards, namely share appreciation rights, restricted share units and
performance share units (“Long-term Incentive Awards”). The Company reserves the right, at its discretion, to
pay the award in cash or ordinary shares of the Company. The fair value of the employee services received in
exchange for the grant of the Long-term Incentive Awards is recognized as employee benefit expense. The total
amount to be expensed over the vesting period is determined by reference to the fair value of the Long-term
Incentive Awards granted, excluding non–market vesting conditions (for example, profitability and sales growth
targets). Non-market vesting conditions are included in assumptions about the number of Long-term Incentive
Awards that are expected to become exercisable/vested.
At each balance sheet date, the Group revises its estimates of the number of Long-term Incentive Awards that
are expected to become exercisable. It recognizes the impact of the revision of original estimates, if any, in the
income statement, and a corresponding adjustment to other comprehensive income over the remaining vesting
period.
Employee share trusts are established for the purposes of awarding shares to eligible employees under the
long-term incentive program. The employee share trusts are administered by independent trustee and are
funded by the Group’s cash contributions and recorded as contributions to employee share trusts, an equity
component. The administrator of the employee share trusts buys the Company’s shares in the open market for
award to employees upon vesting.
Upon vesting by the employees, the corresponding amounts in the share-based compensation reserve will be
transferred to share capital (nominal value) and share premium for new allotment of shares to employees, or to
the employee share trusts for shares awarded to employees by the employee share trusts.
(iv) Share options
In accordance with the transitional provision of HKFRS 2, share options granted after November 7, 2002 and
were unvested on April 1, 2005 were expensed retrospectively in the income statement of the respective
periods. At April 1, 2005, the Group had no option granted after November 7, 2002 that had not yet vested on
that day. The proceeds received net of any directly attributable transaction costs are credited to share capital
(nominal value) and share premium when the options are exercised.
(x) Operating leases (as the lessee)
Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are
accounted for as operating leases. Rental applicable to such operating leases are charged to the income statement
on a straight-line basis over the lease term.
(y) Dividend distribution
Dividend distribution to the Company’s shareholders is recognized as a liability in the Group’s and Company’s
financial statements in the period in which the dividends are approved by the Company’s shareholders in case of final
dividend and by the Company’s directors in case of interim dividend.