Letter To Shareholders - Mitac

11) Allowance for doubtful accounts
Allowance for doubtful accounts is provided based on the collectibility of notes,
accounts and other receivables, taking into account the bad debts incurred in prior
years and the aging analysis of the receivables.
12) Inventories
A. The perpetual inventory system is adopted for inventory recognition. Inventories
are stated at standard cost, which is adjusted to actual cost at year-end.
B. At the end of period, inventories are evaluated at the lower of cost or net
realizable value, and the individual item approach is used in the comparison of
cost and net realizable value. The calculation of net realizable value should be
based on the estimated selling price in the normal course of business, net of
estimated costs of completion and estimated selling expenses.
13) Long-term equity investments accounted for under equity method
A. Long-term equity investments in which the Group holds more than 20% of the
investee company’s voting shares or has the ability to exercise significant
influence on the investee’s operational decisions are accounted for under the
equity method. The excess of the initial investment cost over the acquired net
asset value of the investee attributable to goodwill is no longer amortized,
effective January 1, 2006. Retrospective adjustment of the amount of goodwill
amortized in previous year(s) is not required. The excess of acquired net asset
value of investee over the initial investment cost is allocated proportionately and
applied as a reduction to the book values of identifiable non-current assets, and
any remaining amount of such excess after this allocation is credited to
extraordinary gains. However, negative goodwill occurred prior to December 31,
2005 is continuously amortized. All majority-owned subsidiaries and controlled
entities are accounted for under the equity method and are included in the
consolidated financial statements on a quarterly basis.
B. For investments accounted for under the equity method, the Company
recognizes investment gains or losses by quarter. The unrealized profits and
losses from intercompany transactions between the Company and investee
companies during the current year shall be eliminated.
C. Exchange differences arising from translation of the financial statements of
overseas investee companies accounted for under the equity method are
recorded as “cumulative translation adjustments” under stockholder’s equity.
14) Property, plant and equipment
A. Property, plant and equipment are stated at cost. Interest incurred on loans
used to finance the construction of property and plant is capitalized and
depreciated accordingly.
B. Depreciation is calculated on a straight-line basis over the assets’ estimated
useful lives. Residual values of fixed assets still in use at the end of the
original service lives are depreciated based on the newly estimated remaining
service lives of the assets. The useful lives of the fixed assets are 3 – 10 years,
except for buildings, which are 3 - 55 years.
C. Maintenance and repairs are expensed as incurred. Significant renewals and
improvements are capitalized and depreciated accordingly.
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