LDK Solar Co., Ltd. - Asia Europe Clean Energy (Solar) Advisory Co ...

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)
(r) Advertising expenses
Advertising expenses are charged to the consolidated statement of operations in the period incurred. The
Group incurred advertising expenses amounting to US$ nil and US$138 for the period from July 5, 2005 to
December 31, 2005 and the year ended December 31, 2006, respectively.
(s) Operating leases
Payments made under operating leases are charged to the consolidated statements of operations on a
straight-line basis over the respective lease terms.
(t) Government subsidy
Government subsidies are recognized when received and when all the conditions for their receipt have
been met. Subsidies that compensate the Group for expenses incurred are recognized as a reduction of
expenses in the consolidated statement of operations in the same period in which the related expenses are
incurred. Subsidies that are not associated with expenses incurred or to be incurred are recognized as income.
Xinyu Industry Development District and JXLDK reached an agreement that for electricity costs
JXLDK pays at the market value of US$0.07 per kwh, the district will provide JXLDK with an unconditional
subsidy of US$0.02 per kwh. For the year ended December 31, 2006, US$808 was received to compensate
electricity costs and recorded as a reduction to cost of goods sold.
A subsidy of US$240 was received from local government during 2006 to compensate JXLDK's research
and development expenses and was recorded as a reduction of research and development expenses.
JXLDK received a subsidy of US$1,268 in 2006 from the local government authority as an incentive for
development of wafer industry in Xinyu, which was recorded as other income as there were no specific
expenses required to be incurred by the Group to obtain the subsidy.
(u) Income taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax
credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance is provided to reduce the carrying amount of deferred
tax assets if it is considered more likely than not that some portion, or all, of the deferred tax assets will not be
realized.
(v) Share-based compensation
The Group has adopted SFAS No. 123R, ""Share-based Payment'', which requires that share-based
payment transactions with employees, such as share options, be measured based on the grant-date fair value of
the equity instrument issued and recognized as compensation expense over the requisite service period, with a
corresponding addition to additional paid-in capital. Under this method, compensation cost related to
employee share options or similar equity instruments is measured at the grant date based on the fair value of
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