Lenovo 2015 Annual Report Download - page 157

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2014/15 Annual Report Lenovo Group Limited
NOTES TO THE FINANCIAL STATEMENTS
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(l) Financial guarantee contracts (continued)
Where guarantees in relation to loans or other payables of subsidiaries or associates are provided with no consideration,
the fair values are accounted for as contributions and recognized as part of the cost of the investment in the financial
statements of the Company.
(m) Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is determined on a weighted average basis. The
cost of finished goods (except for trading products) and work-in-progress comprises direct materials, direct labor and
an attributable proportion of production overheads. For trading products, cost represents invoiced value on purchases,
less purchase returns and discounts. Net realizable value is determined on the basis of anticipated sales proceeds less
estimated selling expenses.
(n) Trade and other receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course
of business. Majority of other receivables are amounts due from subcontractors for part components sold in the ordinary
course of business. Trade and other receivables are recognized initially at fair value and subsequently measured at
amortized cost using the effective interest method, less provision for impairment.
If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the
business if longer), they are classified as current assets. If not, they are presented as non-current assets.
(o) Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents mainly comprise cash on hand, deposits held
at call with banks, other short-term highly liquid investments which are subject to an insignificant risk of changes in
value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.
(p) Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or 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.
(q) Borrowings and borrowing costs
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.
General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying
assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are
added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
(r) Trade and other payables
Trade payables are obligations to pay for part components or services that have been acquired in the ordinary course of
business from suppliers. Majority of other payables are obligations to pay for finished goods that have been acquired in
the ordinary course of business from subcontractors. Trade and other payables are recognized initially at fair value and
subsequently measured at amortized cost using the effective interest method.