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)20. Revenue (continued)Construction contractsConstruction contract revenue and cost are recognised by percentage of completion at the balancesheet date where the results of the contract could be reliably estimated, otherwise revenue is recognizedon the basis of the actual contract cost amount which has been incurred and is expected to berecoverable. The results of the contract can be reliably estimated if it is probable that economic benefitsrelating to the contract will flow to the Group and the actually incurred contract cost can be clearlydistinguished and reliably measured. For contracts with fixed prices, the following conditions shouldalso be met: the total revenue of the contract can be reliably measured, and percentage of completionand outstanding cost for completion can be reliably estimated. The percentage of completion is basedon the percentage of costs incurred to date on a contract relative to the estimated total contractcosts. Total contract revenue includes initial income stipulated by the contract and income derivedfrom contract modifications, compensation and rewards, and etc.Rental incomeRental income generated under operating leases is recognized over the respective periods during thelease term using the straight line method. Contingent rental income is charged to current profit andloss when incurred.Interest incomeInterest income is determined by the length of time for which the Group’s cash is in use by otherparties and the effective interest rate.21. Government grantsGovernment grants are recognized when there is reasonable assurance that the grant will be receivedand all attaching conditions will be complied with. The grant is measured as the amount received orreceivable where it takes the form of a cash asset, or at fair value where it is not a cash asset. Wherethe fair value cannot be reliably obtained, it should be measured at the nominal value. Governmentgrants, relating to income and applied towards reimbursement of related costs or losses in subsequentperiods, are recognized as deferred income and taken to current profit or loss for the period in whichthe related costs are recognized. Government grants, applied towards reimbursement of related costsor losses already incurred, are directly recognized in current profit or loss. Where the grant relates to anasset, it is recognized as a deferred income and allocated to the income statement over the expecteduseful life of the relevant asset by equal annual instalments. Where the grant is measured at nominalvalue, it is directly recognized in current profit or loss.183