Samsung 2013 Annual Report Download - page 32

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2013 SAMSUNG ELECTRONICS ANNUAL REPORT
(D) Net dened benet liabilities
The net dened benet liability depends on a number of factors that are
determined on an actuarial basis using a number of assumptions.
Any changes in these assumptions will impact the carrying amount of
the net dened benet liability. The Company, in consideration of
the interest rates of high-quality corporate bonds, determines
the appropriate discount rate at the end of each year. This is the interest
rate that is used to determine the present value of estimated future cash
outows expected to be required to settle the net dened benet liability.
The principal actuarial assumptions associated with the net dened benet
liability are based on the current market expectations.
(E) Estimated impairment of goodwill
The Company tests at the end of each reporting period whether goodwill
has suffered any impairment in accordance with the accounting policy
described in Note 2.12. The recoverable amounts of cash-generating
units have been determined based on value-in-use calculations.
These calculations are based on estimates.
(F) Income taxes
Income taxes on the Company’s taxable income from operating activities
are subject to various tax laws and determinations of each tax authority
across various countries in the world. There is uncertainty in determining
the eventual tax effects on the taxable income from operating activities.
The Company has recognized current tax and deferred tax at the end of
the scal year based on the best estimation of future taxes payable as
a result of operating activities. However, the resulting deferred income tax
assets and liabilities may not equal the actual future taxes payable and such
difference may impact the current tax and deferred income tax assets and
liabilities upon the determination of eventual tax effects.
4. Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, deposits held at call
with banks, and other short-term highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignicant
risk of change in value.
Cash and cash equivalents as of December 31, 2013 and 2012, consist of
the following:
(In millions of Korean won)
2013 2012
Cash on hand ￦14,454 ￦12,900
Bank deposits, etc. 16,270,326 18,778,560
Total ￦16,284,780 ￦18,791,460
Financial instruments subject to withdrawal restrictions as of December 31,
2013 and 2012, consist of the following:
(In millions of Korean won)
2013 2012
Short-term nancial instruments ￦23,850 ￦46,489
Long-term nancial instruments 15 29
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities
and when the deferred income taxes assets and liabilities relate to income
taxes levied by the same taxation authority on either the same taxable entity
or different taxable entities where there is an intention to settle the balances
on a net basis.
2.21 Derivative Instruments
All derivative instruments are accounted for at fair value with the resulting
valuation gain or loss recorded as an asset or liability. If the derivative
instrument is not designated as a hedging instrument, the gain or loss is
recognized in the statement of income in the period of change.
Fair value hedge accounting is applied to a derivative instrument with
the purpose of hedging the exposure to changes in the fair value of an asset
or a liability or a rm commitment (hedged item) that is attributable to
a particular risk. Hedge accounting is applied when the derivative instrument
is designated as a hedging instrument and the hedge accounting criteria
have been met.
2.22 Dividend Distribution
Dividend distribution to the Company’s shareholders is recognized when
the dividends are approved.
2.23 Share Capital
Common shares and preferred shares with no repayment obligations are
classied as equity. When the Company purchases its common shares,
the acquisition costs including direct transaction costs are deducted from
equity until the redemption or reissuance of treasury shares. Consideration
received on the subsequent sale or issue of treasury shares is credited to
equity.
2.24 Revenue Recognition
Revenue mainly comprises the fair value of the consideration received or
receivable for the sale of goods in the ordinary course of the Company’s
activities. Revenue is shown net of value-added tax, returns, sales
incentives and discounts and after eliminating intercompany transactions.
The Company recognizes revenue when specic recognition criteria have
been met for each of the Company’s activities as described below.
The Company bases its estimates on historical results, taking into
consideration the type of customer, the type of transaction and the specics
of each arrangement.
Where multiple-element arrangements exist, the fair values of each
element are determined based on the current market price of each of the
elements when sold separately. When the fair values of each element are
indeterminable, the fair values of deliverables which have already been
provided are calculated in such way that the fair values of elements,
which are yet to be provided, are subtracted from total contract value of
the arrangement.
(A) Sales of goods
Sales of products and merchandise are recognized upon delivery when
the signicant risks and rewards of ownership of goods have transferred
to the buyer, continuing managerial involvement usually associated with
ownership and effective control have ceased, the amount of revenue can be
measured reliably, it is probable that the economic benets associated with
the transaction will ow to the Company and the costs incurred or
to be incurred in respect of the transaction can be measured reliably.
The Company records reductions to revenue for special pricing
arrangements, price protection and other volume based discounts.
If product sales are subject to customer acceptance, revenue is not
recognized until customer acceptance occurs.
(B) Sales of services
Revenues from rendering services are generally recognized using the
percentage-of-completion method, based on the percentage of costs to
date compared to the total estimated costs, contractual milestones or
performance.
(C) Other sources of revenue
Interest income is recognized using the effective interest method.
When a loan and receivable is impaired, the Company reduces the carrying
amount to its recoverable amount, being the estimated future cash ow
discounted at the original effective interest rate of the instrument, and
continues unwinding the discount as interest income. Royalty income is
recognized on an accruals basis in accordance with the substance of
the relevant agreements. Dividend income is recognized when the right to
receive payment is established.
2.25 Government Grants
Government grants are recognized at their fair values when there is
reasonable assurance that the grant will be received and the Group will
comply with the conditions attaching to it. Government grants related to
assets are presented by deducting the grants in arriving at the carrying
amount of the assets, and grants related to income are deferred and
presented by deducting the related expenses for the purpose of
the government grants.
2.26 Earnings per Share
Basic earnings per share is calculated by dividing net prot for the period
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.
2.27 Operating Segments
Operating segments are disclosed in the manner reported to the chief
operating decision-maker (please see footnote 33). The chief operating
decision-maker is responsible for making strategic decisions on resource
allocation and performance assessment of the operating segments.
The management committee which makes strategic decisions is regarded
as the chief operating decision-maker.
2.28 Convenience Translation into United States
Dollar Amounts
The Company operates primarily in Korean won and its ofcial accounting
records are maintained in Korean won. The US dollar amounts provided in
the nancial statements represent supplementary information solely for
the convenience of the reader. All Korean won amounts are expressed
in U.S. dollars at the rate of ￦1,055.30 to US $1, the exchange rate in
effect on December 31, 2013. Such presentation is not in accordance with
generally accepted accounting principles, and should not be construed
as a representation that the Korean won amounts shown could be readily
converted, realized or settled in US dollars at this or at any other rate.
2.29 Approval of the Consolidated Financial
Statements
These consolidated nancial statements were approved by the Board of
Directors on January 24, 2014.
The Company makes estimates and assumptions concerning the future.
The estimates and assumptions are continuously assessed, considering
historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
The resulting accounting estimates will, by denition, seldom equal
the related actual results. The estimates and assumptions that have
a signicant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next nancial year are addressed below.
(A) Revenue recognition
The Company uses the percentage-of-completion method in accounting
for its xed-price contracts to deliver installation services. Use of the
percentage-of-completion method requires the Company to estimate
the services performed to date as a proportion of the total services to
be performed. Revenues and earnings are subject to signicant change,
effected by early steps in a long-term projects, change in scope of a project,
cost, period, and plans of the customers.
(B) Provision for warranty
The Company recognizes provision for warranty on products sold.
The Company accrues provision for warranty based on the best estimate
of amounts necessary to settle future and existing claims. The amounts are
estimated based on historical data.
(C) Fair value of derivatives and other nancial instruments
The fair value of nancial instruments that are not traded in an active market
is determined by using a variety of methods and assumptions that are
mainly based on market conditions existing at the end of each reporting
period.
5. Financial Assets Subject to
Withdrawal Restrictions
3. Critical Accounting Estimates and
Assumptions