2012 Annual Report - ZTE

ANNUAL REPORT 2012Notes to Financial Statements (continued)(Prepared in accordance with PRC ASBEs)(All amounts in RMB’000 unless otherwise stated)(English translation for reference only)II.PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)5. Business combination (continued)Business combinations involving entities under common control (continued)Assets and liabilities obtained by combining party in the business combination are recognized at theircarrying amounts at the combination date as recorded by the party being combined. The differencebetween the carrying amount of the consideration paid for the combination (or aggregate face values ofthe shares issued) and the carrying amount of the net assets obtained is adjusted to capital reserves. Ifthe capital reserve is not sufficient to absorb the difference, any excess is adjusted to retained profits.Business combinations not involving entities under common controlA business combination not involving entities under common control is a business combination inwhich all of the combining entities are not ultimately controlled by the same party or parties bothbefore and after the business combination. The acquirer is the entity that obtains control of the otherentities participating in the combination at the acquisition date, and the other entities participating inthe combination are the acquirees. The acquisition date is the date on which the acquirer effectivelyobtains control of the acquiree.The acquiree’s identifiable assets, liabilities and contingent liabilities are recognized at their fair valuesat the acquisition date.The excess of the sum of the consideration paid (or equities issued) for business combination andequity interests in the acquiree held prior to the date of acquisition over the share of the attributablenet identifiable assets of the acquiree, measured at fair value, was recognized as goodwill, which issubsequently measured at cost less cumulative impairment loss. In case the fair value of the sumof the consideration paid (or equities issued) and equity interests in the acquiree held prior to thedate of acquisition is less than the fair value of the share of the attributable net identifiable assetsof the acquiree, a review of the measurement of the fair values of the identifiable assets, liabilitiesand contingent liabilities, the consideration paid for the combination (or equity issued) and the equityinterests in the acquiree held prior to the date of acquisition is conducted. If the review indicatesthat the fair value of the sum of the consideration paid (or equities issued) and equity interests in theacquiree held prior to the date of acquisition is indeed less than the fair value of the share of theattributable net identifiable assets of the acquiree, the difference is recognized in current profit or loss.6. Consolidated financial statementsThe consolidation scope for consolidated financial statement is determined based on the conceptof control, including the Company and all subsidiaries’ financial statements for the year ended 31December 2012. Subsidiaries are those enterprises or entities which the Company has control over.The financial statements of the subsidiaries are prepared for the same reporting period as the Company,using consistent accounting policies. All balances, transactions and unrealized profit and loss arisingfrom intercompany transactions, and dividends are eliminated on consolidation.165