Samsung 2006 Annual Report Download - page 94

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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 contributions to the plan are made at
the direction of the Companies.
In accordance with the National pension Act, a certain portion
of the accrued severance benefits is deposited with the National
Pension Fund and deducted from the accrued severance 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 as either income or expense for then
period.
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 based on
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 carryforwards.
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 credits 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 balances
are offset against each other.
Long-Term Receivables and Payables
Long-term receivables and payables that have no stated interest
rate or whose interest rate are different from the market rate are
recorded at their present values using the market rate of discount.
The difference between the nominal value and present value of
the long-term receivables and payables are 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 in 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 year. Diluted
earnings per share is calculated using the weighted-average
number of common shares outstanding adjusted to include
the potentially dilutive effect of common equivalent shares
outstanding.
Provisions and Contingent Liabilities
The Company accrues the estimated cost of warranty coverage at
the time sales are recorded.When there is a probability that
an outflow of economic benefits will occur due to a present
obligation resulting from a past event, and whose amount is
reasonably estimable, a corresponding amount of provision is
recognized in the financial statements. However, when such
outflow is dependent upon a future event, is not certain to occur,
or cannot be reliably estimated, a disclosure regarding
the contingent liability is made in the notes to the financial
statements.
Derivative Instruments
Derivative financial instruments for trading or hedging purpose
are valued at estimated market price with the resulting unrealized
gains or losses recognized in the current operations, except for
the effective portion of derivative transactions entered into for