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)22. Income taxIncome taxes include current and deferred tax. Income taxes are recognized in current period’s profitor loss as income tax expense or income tax benefit, except for the adjustment made for goodwillin a business combination and income tax from transactions or items that directly related to equity.For current period’s deferred tax assets and liabilities arising in current and prior periods, the Groupmeasures them at the amount expected to be paid or recovered according to the relevant taxationregulations.The Group recognizes deferred tax assets and liabilities based on temporary differences using balancesheet liability method. Temporary differences are differences between the carrying amount of assets orliabilities in the balance sheet and their tax base on the balance sheet date. Temporary differences alsoinclude the differences between the book values and tax bases of items not recognized as assets orliabilities where the tax base can be calculated according to the relevant tax regulations.Deferred tax liabilities are recognized for all taxable temporary differences, except:(1) Where the taxable temporary difference arises from goodwill or the initial recognition of an assetor liability in a transaction that is not a business combination and, at the time of the transaction,affects neither the accounting profit nor taxable profit or loss;(2) In respect of taxable temporary differences associated with investments in subsidiaries, associatesand interests in joint ventures, where the timing of the reversal of the temporary differences canbe controlled and it is probable that the temporary differences will not reverse in the foreseeablefuture.Deferred tax assets are recognized for all deductible temporary differences, carryforward of unusedtax credits and unused tax losses, to the extent that it is probable that taxable profit will be availableagainst which the deductible temporary differences, and the carryforward of unused tax credits andunused tax losses can be utilised except:(1) where the deductible temporary differences arises from the initial recognition of an asset or liabilityin a transaction that is not a business combination and, at the time of the transaction, affectsneither the accounting profit nor taxable profit or loss;(2) in respect of deductible temporary differences associated with investments in subsidiaries,associates and interests in joint ventures, deferred tax assets are only recognized to the extentthat it is probable that the temporary differences will reverse in the foreseeable future and taxableprofit will be available against which the temporary differences can be utilized.As at balance sheet date, deferred tax assets and liabilities are measured in accordance with relevanttax laws at the tax rates that are expected to apply to the period when the asset is realized or theliability is settled, and reflects the tax consequences that would follow the manner in which the Groupexpects, at the balance sheet date, to recover the assets or settle the carrying amount of its assetsand liabilities.184