Lenovo 2015 Annual Report Download - page 159

157
2014/15 Annual Report Lenovo Group Limited
NOTES TO THE FINANCIAL STATEMENTS
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(u) Contingent liabilities
A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by
the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It
can also be a present obligation arising from past events that is not recognized because it is not probable that outflow
of economic resources will be required or the amount of obligation cannot be measured reliably.
A contingent liability is not recognized but is disclosed in the notes to the financial statements. When a change in the
probability of an outflow occurs so that the outflow is probable, it will then be recognized as a provision.
(v) Revenue
Revenue is measured at the fair value of the consideration received or receivable for the sale of goods and services in
the normal course of the Group’s activities.
(i) Sale of goods and services
Revenue from sale of hardware, software and peripherals, services and mobile devices is recognized, net of value-
added tax, an allowance for estimated returns, rebates and discounts, when both ownership and risk of loss are
effectively transferred to customer, generally when there is a persuasive evidence that a sales arrangement exists,
the price is fixed or determinable, collectability is reasonably assured and delivery has occurred. Revenue from
extended warranty contracts is deferred and amortized as earned over the contract period, ranging from one to
four years. Revenue associated with undelivered elements is deferred and recorded when delivery occurs. Revenue
from provision of systems integration service and information technology technical service is recognized over the
term of contract or when services are rendered.
The Group defers the cost of shipped products awaiting revenue recognition until the goods are delivered and
revenue is recognized.
(ii) Interest income
Interest income is recognized 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 receivables is recognized using the original effective interest rate.
(iii) Dividend income
Dividend income is recognized when the right to receive payment is established.
(w) 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 charges, storage and warehousing costs, 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.
(x) 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 which 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.
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. Significant portion of 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 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 obligation. In countries
where there is no deep market in such bonds, the market rates on government bonds are used.