2006 - TCL Communication Technology Holdings Limited

TCL COMMUNICATION TECHNOLOGY HOLDINGS LIMITED
Notes to Financial Statements
31 December 2006
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Employee benefits
Share-based payment transactions
The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible
participants who contribute to the success of the Group’s operations. Employees (including directors) of the Group
receive remuneration in the form of share-based payment transactions, whereby employees render services as
consideration for equity instruments (“equity-settled transactions”).
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at
which they are granted. The fair value is determined by an external valuer using a binomial model, further details of
which are given in note 33 and the report of the directors. In valuing equity-settled transactions, no account is taken
of any performance conditions, other than conditions linked to the price of the shares of the Company (“market
conditions”), if applicable.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the
period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant
employees become fully entitled to the award (the “vesting date”). The cumulative expense recognised for equitysettled
transactions at each balance sheet date until the vesting date reflects the extent to which the vesting period
has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge
or credit to the income statement for a period represents the movement in the cumulative expense recognised as
at the beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional
upon a market condition, which are treated as vesting irrespective of whether or not the market condition is
satisfied, provided that all other performance conditions are satisfied.
Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms
had not been modified. In addition, an expense is recognised for any modification, which increases the total fair
value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date
of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any
expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the
cancelled award, and is designated as a replacement award on the date that it is granted, the cancelled and new
awards are treated as if they were a modification of the original award, as described in the previous paragraph.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per
share.
Central Pension Scheme
Subsidiaries operating in Mainland China have participated in the central pension scheme (the “CPS”) operated by
the PRC government for all of their staff. These PRC subsidiaries are required to contribute a certain percentage of
their covered payroll to the CPS to fund the benefits. The only obligation of the Group with respect to the CPS is
to pay the ongoing required contributions under the CPS. Contributions under the CPS are charged to the profit
and loss account as they become payable in accordance with the rules of the CPS.
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Annual Report 2006