Huawei 2013 Annual Report Download - page 48

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47
Management Discussion and Analysis
Allowance for Doubtful Accounts
The company’s gross accounts receivable balances
were CNY64,220 million and CNY58,588 million
as of December 31, 2013 and December 31, 2012,
respectively. The allowances for doubtful accounts
were CNY4,340 million, or 6.8% of the gross
accounts receivable balance as of December 31,
2013, and CNY3,487 million, or 6.0% of the
gross accounts receivable balance as of December
31, 2012. The allowances are recorded based
on the collectability of accounts receivable from
customers. The company regularly reviews the
allowances for doubtful accounts by considering
factors such as historical experiences, customer
creditworthiness, the age of accounts receivable
balances, and current economic conditions that
may affect a customer’s ability to pay.
The company’s provisions for doubtful accounts
charged to the statement of profit or loss
were CNY1,075 million and CNY3,479 million
for fiscal years ended December 31, 2013 and
December 31, 2012, respectively. If key customers’
creditworthiness deteriorates, or if the default
risk is higher than the historical trend, or if
other circumstances arise, the estimates of the
recoverability of amounts due to the company
could be overstated, and additional allowances
could be required, which could have an adverse
impact on the company’s profit.
Inventories Write-down
The company’s inventory balances were CNY24,929
million and CNY22,237 million as of December
31, 2013 and December 31, 2012, respectively.
Inventories are measured at the lower of cost or
net realizable value. The difference between the
cost of the inventory and the net realizable value is
recorded as inventory provision. Net realizable 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. The following factors are considered for the
recognition of net realizable value: purposes of
the inventories held, inventory aging, percentage
of inventory utilization, inventory categories and
conditions, and subsequent events with material
influences on inventory value. The company
reviews the inventory provisions periodically to
ensure its accuracy and reasonableness.
The company’s inventory provisions charged to the
statement of profit or loss were CNY1,231 million
and CNY17 million for fiscal years ended December
31, 2013 and December 31, 2012, respectively.
Provision for Warranties
When recognizing revenue, the company estimates
the possible future liabilities that it may incur
under its product warranty obligations and records
a warranty provision. The warranty provision
balances were CNY2,963 million and CNY2,407
million as of December 31, 2013 and December
31, 2012, respectively. The company’s products
are generally covered by a warranty period of
12 months. The company accrues for warranty
costs as part of cost of sales based on historical
expenditure on material costs, technical support
labor costs, and associated overheads.