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LDK SOLAR CO., LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
FOR THE PERIOD FROM JULY 5, 2005 TO DECEMBER 31, 2005
AND THE YEAR ENDED DECEMBER 31, 2006
(Amounts in US$ thousands, except share and per share data)
Cost incurred in constructing new facilities, including progress payment and other costs relating to the
construction, are capitalized and transferred to property, plant and equipment on completion and depreciated
from that time. Cost comprises direct costs of construction as well as borrowing costs capitalized during the
period of construction and installation. The capitalization of borrowing costs as part of the cost of a qualifying
asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and
activities that are necessary to prepare the asset for its intended use of sale are in progress. Capitalization of
borrowing costs ceases when substantially all the activities necessary to prepare the qualifying asset for its
intended use are completed.
No depreciation is provided in respect of construction in progress until it is substantially complete and
ready for its intended use.
(j) Intangible asset, net
Intangible asset, net represents technical know-how, which is carried at cost less accumulated amortization.
The technical know-how was acquired from equipment manufacturers for operation of equipment.
Technical know-how is amortized on a straight-line basis over its expected useful life of 10 years, less
impairment losses (see note 2(l)).
(k) Land use rights
Land use rights represent fees paid to obtain the right to use land in the PRC.
(l) Impairment of long-lived assets
Property, plant and equipment and purchased intangible assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to
the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of
an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which
the carrying amount of the asset exceeds the fair value of the asset. No impairment of long-lived assets was
recognized for the period from July 5, 2005 to December 31, 2005 and the year ended December 31, 2006.
(m) Fair value of financial instruments
The Group used the following methods and assumptions to estimate the fair value of financial
instruments at the relevant balance sheet date:
‚ Short-term financial instruments (cash equivalents, trade accounts receivable and payable, short-term
bank borrowings, and accrued liabilities) Ì cost approximates fair value because of the short maturity
period.
‚ Long-term debt Ì fair value is based on the amount of future cash flows associated with each debt
instrument discounted at the Group's current borrowing rate for similar debt instruments of comparable
terms. The carrying values of the long term loans approximate their fair values due to their variable
market interest rates.
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