Huawei 2014 Annual Report Download - page 52

50 Huawei Investment & Holding Co., Ltd. 2014 Annual Report
Revenue Recognition
The application of accounting principles related to the
measurement and recognition of revenue requires the
company to make significant judgments and estimates.
Even for the same product, the company often has to
determine the appropriate accounting treatment after
analyzing the contract terms and conditions. When
installation, training, and other services are rendered and
sold together with a product, the company determines
whether the deliverables should be treated as separate
units of accounting and recognizes the revenue
accordingly. When there are multiple transactions with
the same customer, the company applies significant
judgments to determine whether separate contracts
are considered as part of one arrangement based on
contract terms and conditions. When an equipment
that requires installation is delivered and accepted by a
customer at different stages, the company determines
whether to recognize revenue by stages based on
assessment of whether the completed project is able
to be used by the customer, and whether the obtained
certificate of acceptance would support payment
collections.
Revenue recognition is also impacted by various factors,
including the creditworthiness of the customer. The
company regularly reviews estimates of these factors to
assess its adequacy. If these estimates were to change,
revenue will be impacted accordingly.
Allowance for Doubtful Accounts
The company's gross accounts receivable balances
were CNY80,929 million and CNY76,691 million
as of December 31, 2014 and December 31, 2013,
respectively. The allowances for doubtful accounts
were CNY5,084 million, or 6.3% of the gross accounts
receivable balance as of December 31, 2014, and
CNY4,340 million, or 5.7% of the gross accounts
receivable balance as of December 31, 2013. 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 CNY89 million
and CNY1,075 million for fiscal years ended December
31, 2014 and December 31, 2013, 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 CNY46,576
million and CNY24,929 million as of December 31,
2014 and December 31, 2013, 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,