2012 Annual Report - ZTE

ZTE CORPORATIONNotes 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)6. Consolidated financial statements (continued)The excess of current loss attributable to minority shareholders of a subsidiary over their entitlementsto the opening balance of shareholders’ equity shall be charged to minority interests. A change inminority interests without loss of control is accounted for as an equity transaction.For subsidiaries obtained through a business combination not involving entities under common control,the operating results and cash flows of the acquirees will be recognized in consolidated financialstatements from the date the Group effectively obtains the control until the date that control isterminated. When consolidated financial statement is prepared, the subsidiaries’ financial statementswill be adjusted based on the fair values of the identifiable assets, liabilities and contingent liabilitiesat the acquisition date.For subsidiaries obtained through a business combination involving entities under common control, theoperating result and cash flow of the party being combined will be recognized in consolidated financialstatement from the beginning of the period during which the combination occurs. In preparing thecomparative consolidated financial statements, adjustments were made to relevant items in financialstatements in previous periods as if the reporting entity formed after the consolidation had been inexistence since the ultimate controlling party started to exercise effective control.7. Cash and cash equivalentsCash comprises cash on hand and deposits readily available for payments. Cash equivalents representshort-term highly liquid investments which are readily convertible to known amounts of cash, andsubject to an insignificant risk of changes in value.8. Foreign currency translationFor foreign currency transactions, the Group translates the foreign currency into its functional currency.Upon initial recognition, foreign currency transactions are translated into the functional currency usingthe average exchange rate for the period when transactions occur. At the balance sheet date, foreigncurrency monetary items are translated using the spot exchange rate at the balance sheet date. Thetranslation differences arising from the settlement and foreign currency monetary items, except thoserelating to foreign currency borrowings for the acquisition, construction or production of assets eligiblefor the capitalization shall be dealt with according to the principle of capitalization of borrowing costs,are recognized in profit or loss. Also at the balance sheet date, foreign currency non-monetary itemsmeasured at historical cost continue to be translated using the spot exchange rate at the dates ofthe transactions and it does not change its carrying amount in functional currency. Foreign currencynonmonetary items measured at fair value are translated using the spot exchange rate. The differencesarising from the above translations are recognized in current profit or loss or other comprehensiveincome according to the nature of foreign currency monetary items.166