Huawei 2012 Annual Report Download - page 52

Consolidated Financial Statements Summary and Notes
49
(l) Inventories
Inventories are carried at the lower of cost
and net realisable value.
Cost is calculated using the standard cost
method with periodical adjustments of
cost variance to arrive at the actual cost,
which approximates actual cost on a first-
in first-out basis. The cost of inventories
includes expenditures incurred in acquiring
the inventories and bringing them to their
existing location and condition. In the case
of manufactured inventories and work in
progress, cost includes an appropriate share
of overheads based on normal operating
capacity.
Net realisable value is the estimated selling
price in the ordinary course of business, less
the estimated costs of completion and the
estimated costs necessary to make the sale.
When inventories are sold, the carrying
amount of those inventories is recognised
as an expense in the period in which the
related revenue is recognised. The amount
of any write-down of inventories to net
realisable value and all losses of inventories
are recognised as an expense in the period
the write-down or loss occurs. The amount
of any reversal of any write-down of
inventories is recognised as a reduction in
the amount of inventories recognised as an
expense in the period in which the reversal
occurs.
(m) Construction contracts
Construction contracts are contracts
specifically negotiated with a customer for
the construction of an asset or a group of
assets, where the customer is able to specify
the major structural elements of the design.
The accounting policy for contract revenue
is set out in note 1(u)(ii). When the outcome
of a construction contract can be estimated
reliably, contract costs are recognised as
an expense by reference to the stage of
completion of the contract at the balance
sheet date. When it is probable that total
contract costs will exceed total contract
revenue, the expected loss is recognised
as an expense immediately. When the
outcome of a construction contract cannot
be estimated reliably, contract costs are
recognised as an expense in the period in
which they are incurred.
Construction contracts in progress at the
balance sheet date are recorded in the
consolidated balance sheet at the net amount
of costs incurred plus recognised profit less
recognised losses and progress billings, and
are presented in the consolidated balance
sheet as the “gross amount due from third-
party customers for contract work” (as an
asset) or the “gross amount due to third-
party customers for contract work” (as a
liability), as applicable. Progress billings not
yet paid by the customer are included in the
consolidated balance sheet under “other
receivables”. Amounts received before the
related work is performed are included in
the consolidated balance sheet, as a liability,
as “other payables”.