D-Link 2014 Annual Report Download - page 43

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20
D-LINK CORPORATION AND SUBSIDIARIES
Notes to the consolidated financial statements
(Continued)
(w) Operating segments
An operating segment is a component of the Consolidated Company that engages in business activities
from which it may earn revenues and incur expenses (including revenues and expenses relating to
transactions with other components of the Consolidated Company). The operating results of all
operating segments are regularly reviewed by the Consolidated Company’s chief operating decision
maker to make decisions about resources to be allocated to the segment and assess its performance.
Each operating segment has its financial information.
5. Significant accounting judgments, estimations, assumptions, and sources of estimation uncertainty
The preparation of the financial statements in conformity with standards requires management to make
judgments, estimates and assumptions that affect the application of the accounting policies and the reported
amount of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Management continued to monitor the estimates and assumptions. Management recognized the changes in
the accounting estimates during the period and the impact of changes in the accounting estimates in the next
period.
The book value of the assets and liabilities below are affected by accounting assumptions and judgments
and have significant impact on the consolidated financial statements. The actual results may differ from the
information below if these accounting assumptions and judgments are adopted.
(a) Financial assets at fair value
The fair value of non-active market or non-quoted financial instruments is determined using valuation
techniques. Such fair value is based on observable data of similar financial instruments or valuation
model. If there are no observable market parameters, the fair value of financial instruments is evaluated
based on appropriate assumptions. If fair value is determined by the valuation model, the model is
calibrated to ensure that all output data and the results reflect the actual market price. This valuation
model use only observable data as much as possible. As regards to the credit risks (counterparty credit
risk), management has to estimate its fluctuations and its correlations.
(b) Impairment assessment on intangible assets
The Consolidated Company will assess the recoverable amount on its intangible assets at the end of
each reporting date. Determining whether goodwill is impaired requires an calculation of the value in
use is based on the estimated 5 years future cash flows of the Consolidated Company. Financial
forecast on future cash flows is based on the growth of future annual revenue, cost and gross profit.
(c) Impairment assessment of investments under equity methods
The Consolidated Company assesses the impairment of investments accounted for using the equity
method whenever triggering events or changes in circumstances indicate that an investment may be
impaired and carrying value may not be recoverable. The Consolidated Company assesses the
impairment based on projected future cash flow of the investments, including the estimated sales
growth rate by investees’ internal management team, and the Consolidated Company will analyze the
reasonableness of related assumptions.