Lenovo 2016 Annual Report Download - page 180

178 Lenovo Group Limited 2015/16 Annual Report
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.
The Group enters into different shipping terms with customers. Delivery is generally considered as
occurred once the goods are shipped. For certain transactions, the Group defers the recognition of
revenue and cost of shipped products until the goods are delivered to designated locations.
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.
(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.