D-Link 2004 Annual Report Download - page 37

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9
D-LINK CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(16) Treasury stock
Pursuant to ROC SFAS No. 30, “Accounting for Treasury Stock”, the outstanding shares of D-
Link purchased back by itself should be recorded as treasury stock at the purchasing cost before
such shares are disposed of or retired.
If treasury stock is disposed of afterward, the difference is recorded as capital surplus when the
disposal price is higher than the carrying amount; when the situation is reversed, the difference is
recorded as a reduction in capital surplus generated from treasury stock transaction, and any
insufficiency is applied to retained earnings. The carrying amount of the treasury stock is
calculated by using the weighted-average method.
When retiring treasury stock, common stock and capital surplus derived from paid-in capital in
excess of par value should be eliminated proportionally. If the carrying amount of retired
treasury stock is higher than the eliminated amount of common stock and capital surplus, then the
difference is recorded as a reduction in capital surplus derived from treasury stock, with any
insufficiency applied to retained earnings; when the situation is reversed, the difference is
recorded as capital surplus.
(17) Net income per common share
Net income per common share is calculated based on the weighted-average number of common
shares outstanding during the period. The effect on net income per common share from the
increase in stock from the transfer of unappropriated earnings, capital surplus, and employee
profit sharing is computed retroactively.
Overseas convertible bonds and domestic convertible bonds issued by D-Link in 2001 and 1999,
respectively, are potential common stock. If there is a dilutive effect, both basic and dilutive net
income per common share will be disclosed. For dilutive net income per common share, the net
income and the weighted-average number of common shares outstanding during the period
should be adjusted to include the dilutive effects of the potential common stock, assuming that
they are outstanding during the whole period.
(18) Reasons for and effect of the accounting changes
Starting 2003, YCI was able to timely obtain Quie Tek Corp.’ s financial statements for the
recognition of its equity method investment income or loss. As a result, the 2003 and 2002
investment gains or losses from Quie Tek Corp. were all recorded in 2003. This accounting
change increased D-Link and subsidiaries’ investment income by $14,828 thousand, and the
effect on income from continuing operations before income tax was not significant.