Samsung 2005 Annual Report Download - page 95

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A portion of the accrued severance benefits of domestic
companies is funded through a group severance insurance
plan with Samsung Life Insurance Co., Ltd. and Samsung
Fire & Marine Insurance Co., Ltd., and the amounts funded
under this insurance plan are presented as a deduction to the
accrued severance benefits liability. Subsequent accruals are
to be funded at the discretion of the companies.
In accordance with the National pension Act, a certain por-
tion of the accrued severance benefits is deposited with the
National Pension Fund and deducted from the accrued sever-
ance benefits liability.
Revenue Recognition
Sales of products and merchandise are recognized upon
delivery when the significant risks and rewards of ownership
of the goods are transferred to the buyer. Revenue from
installation service contracts is recognized using the percentage-
of-completion method.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are
translated into Korean won at the rate of exchange in effect as
of the balance sheet date. Gains and losses resulting from the
translation are reflected in income for the year.
Foreign currency convertible debentures are translated at the
exchange rate that will be used at the time of conversion as
prescribed in the terms of such debentures.
Translation of Foreign Operations
Accounts of foreign subsidiaries are maintained in the
currencies of the countries in which they operate. In translating
the foreign currency financial statements of these subsidiaries
into Korean won, income and expenses are translated
at the average rate for the year and assets and liabilities
are translated at the rate prevailing on the balance sheet
date. Resulting translation gains or losses are recorded as
a cumulative translation adjustment presented as part of
shareholders’ equity.
Deferred income tax assets and liabilities
Deferred income tax assets and liabilities are recognized for
the estimated future tax consequences attributable to the
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases,
and operating loss and tax credit carry-forwards.
Deferred income tax assets and liabilities are computed on such
temporary differences by applying statutory tax rates applicable
to the years when such differences are expected to be reversed.
Tax assets related to tax credit and exemptions are recognized
to the extent of the Company’s certain taxable income.
The balance sheet distinguishes the current and non-current
portions of the deferred tax assets and liabilities, whose bal-
ances are offset against each other.
In accordance with SKFAS No.16, Deferred Income Tax,
which became effective January 1, 2005, the Company
classified deferred income tax assets and liabilities into current
portion and non-current portion based on net amount.
The balance sheet as of December 31, 2004, has not been
restated to reflect such change.
Long-Term Receivables and Payables
Long-term receivables and payables that have no stated
interest rate or whose interest rate is different from the market
rate are recorded at their present values. The difference
between the nominal value and present value of the long-term
receivables and payables is amortized using the effective
interest rate method with interest income or expense adjusted
accordingly.
Stock-Based Compensation
The Company uses the fair-value method in determining
compensation costs of stock options granted to its
employees and directors. The compensation cost is
estimated using the Black-Scholes option pricing model and
is accrued as a charge to expense over the vesting period,
with a corresponding increase in a separate component of
shareholders’ equity as other capital adjustments.
Earnings Per Share
Basic earnings per share is calculated by dividing net income
available to common shareholders by the weighted-average
number of common shares outstanding during the period.
Diluted earnings per share is calculated by using the
weighted-average number of common shares outstanding
adjusted to include the potentially dilutive effect of convertible
bonds.
Product Warranties
The Company accrues the estimated cost of warranty includ-
ing future repairs and other services at the time of sale.
Derivative Instruments
Derivative financial instruments for trading or hedging purpose
are valued at estimated market price with the resulting unre-
alized gains or losses recognized in the current operations,
except for the effective portion of derivative transactions
entered into for the purpose of cash-flow hedges, which is
recorded as an adjustment to shareholders’ equity.