Lenovo 2011 Annual Report Download - page 88

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2010/11 Annual Report Lenovo Group Limited 91
2 Significant accounting policies (continued)
(v) 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 period in which they arise. These 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 two types of awards, namely share appreciation rights and restricted 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.
The total expense is recognized over the vesting period, which is the period over which all of the specified vesting
conditions are to be satisfied.
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, with a corresponding adjustment to other comprehensive income.
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, 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 was 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.
(w) 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. Payments made under operating leases (net of any inventives received from the
lessor) are charged to the income statement on a straight-line basis over the lease term.
(x) 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.