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)Judgements (continued)Revenue Recognition (continued)Where hardware does not require significant customisation, and any software is considered incidental,revenue should be recognized under ASBE No.14 — Revenue if: it is probable that the economicbenefits associated with the transaction will flow to the Group the amount can be measured reliably;the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; theentity retains neither continuing managerial involvement to the degree usually associated with ownershipnor effective control over the goods sold; and the costs incurred or to be incurred in respect of thetransaction can be measured reliably.For hardware, delivery is considered to have occurred upon shipment provided that the risk of loss andtitle have been transferred to the customer. For arrangements where the criteria for revenue recognitionhave not been met because legal title or the risk of loss on products was not transfer to the buyeruntil final payment had been received or where delivery had not occurred, revenue is deferred to alater period when title or the risk of loss passes either on delivery or on receipt of payment from thecustomer.For further information on the Group’s revenue recognition policies relating to our material revenuestreams, please refer to Note II. 20 to the consolidated financial statements.Deferred tax liabilities arising from dividend distributionThe Group is required to recognize deferred tax liabilities for taxable temporary differences relatingto investments in certain subsidiaries, unless two conditions are met as follows: the Group is able tocontrol the timing of the reversal of the temporary difference and such temporary difference is not likelyto be reversed in the foreseeable future. The Group is of the view that it is able to fully control thetiming of the reversal of the temporary difference arising from dividend distribution of the subsidiaryand that the subsidiary will not make any profit distribution in the foreseeable future. Therefore, theGroup has not recognised any deferred income tax liability. See Note V.17.Derecognition of financial assetsWhere the Group has transferred the right to receive cash flow arising from an asset but has nottransferred or has retained substantially all risks and rewards associated with such asset, or has nottransferred the controlling right in such asset, such asset shall be recognized and accounted for so longas the Group continues to be involved in such asset. If the Group has not transferred or has retainedsubstantially all risks and rewards associated with the asset or transferred the controlling right in theasset, the exercise of significant judgment is often required, and estimations need to be made as tothe extent of the Group’s continued involvement in the asset.191