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)30. Significant accounting judgements and estimates (continued)JudgementsIn the process of applying the Group’s accounting policies, management has made the followingjudgements, which have the most significant effect on the amounts recognized in the financialstatements:Revenue RecognitionThe Group’s material revenue streams are the result of a wide range of activities, from custom designand installation over a period of time to a single delivery of equipment to a customer. The Group’snetworking solutions also cover a broad range of technologies and are offered on a global basis. Asa result, our revenue recognition policies can differ depending on the level of customization within thesolution and the contractual terms with the customer. Newer technologies within one of the Group’sreporting segments may also have different revenue recognition policies, depending on, among otherfactors, the specific performance and acceptance criteria within the applicable contracts. Therefore,management must use significant judgement in determining how to apply the current accountingstandards and interpretations, not only based on the networking solutions, but also within networkingsolutions based on reviewing the level of customization and contractual terms with the customer. Asa result, our revenues may fluctuate from period to period based on the mix of solutions sold and thegeographic regions in which they are sold.When a customer arrangement involves multiple deliverables where the deliverables are governed bymore than one authoritative standard, the Group evaluates all deliverables to determine whether theyrepresent separate units of accounting based on the following criteria:1) whether the delivered item has value to the customer on a stand-alone basis; and2) if the contract includes a general right of return relative to the delivered item, delivery orperformance of the undelivered item(s) is considered probable and is substantially in the Group’scontrol.The Group’s determination of whether deliverables within a multiple element contract can be treatedseparately for revenue recognition purposes involves significant estimates and judgement, such aswhether the delivered elements have standalone value to the customer. Changes to the Group’sassessment of the accounting units in an arrangement and/or its ability to establish fair values couldsignificantly change the timing of revenue recognition.189