Lenovo 2014 Annual Report Download - page 143

141
2013/14 Annual Report Lenovo Group Limited
2 Significant accounting policies (continued)
(p) Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax,
from the proceeds.
Where any group company purchases the Company’s equity share capital (treasury shares), the consideration paid,
including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the
Company’s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any
consideration received (net of any directly attributable incremental transaction costs and the related income tax effects) is
included in equity attributable to the Company’s equity holders.
(q) Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Transaction costs are incremental costs
that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability, including fees and
commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and
transfer taxes and duties. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net
of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings
using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability
for at least 12 months after the balance sheet date.
(r) Trade and other payables
Trade payables are obligations to pay for part components or services that have been acquired in the ordinary course of
business from suppliers. Majority of other payables are obligations to pay for finished goods that have been acquired in
the ordinary course of business from subcontractors. Trade and other payables are recognized initially at fair value and
subsequently measured at amortized cost using the effective interest method.
Trade and other payables are classified as current liabilities if payment is due within one year or less (or in the normal
operating cycle of the business if longer). If not, they are presented as non-current liabilities.
(s) Provisions
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined
by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with
respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using
a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the
obligation. The increase in the provision due to passage of time is recognized as interest expense.
(i) Warranty provision
The Group records warranty liabilities at the time of sale for the estimated costs that will be incurred under its basic
limited warranty. The specific warranty terms and conditions vary depending upon the product and the country in
which it was sold, but generally includes technical support, repair parts and labor associated with warranty repair and
service actions. The period ranges from one to three years. The Group reevaluates its estimates on a quarterly basis
to assess the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
(ii) Other provisions
Provisions for environmental restoration, restructuring costs and legal claims are recognized when: the Group has a
present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be
required to settle the obligation; and the amount has been reliably estimated. Restructuring costs provision comprises
lease termination penalties and employee termination payments. Provisions are not recognized for future operating
losses.
(t) Current and deferred income tax
The tax expense for the period comprises current and deferred income tax.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance
sheet date in the countries where the Company and its subsidiaries, joint ventures and associates operate and generate
taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which
applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.