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)30. Significant accounting judgements and estimates (continued)Estimation uncertaintyThe key assumptions concerning the future and other key sources of estimation uncertainty at thebalance sheet date, that have a significant risk of causing a material adjustment to the carrying amountsof assets and liabilities within subsequent financial years, are discussed below.Impairment of fixed assets, construction in progress and intangible assetsThe Group assesses at each balance sheet date whether there is an indication that fixed assets,construction in progress and intangible assets may be impaired. If any such indication exists, theGroup makes an estimate of the asset’s recoverable amount and performs a test of impairment forthe asset. The recoverable amount is measured at the net amount of the fair value of the asset lessdisposal costs or the present value of the estimated future cash flow of the asset, whichever is higher.This requires an estimate of the expected future cash flows from the asset or the cash-generating unitto which the asset was allocated and also to choose a suitable discount rate in order to calculate thepresent value of those cash flows.An impairment loss is recognized when the carrying amount of fixed assets, construction in progressand intangible assets exceeds the recoverable amount. The carrying amount is written down to therecoverable amount and the write-down is charged to current profit or loss, while correspondingprovision for asset impairment is also made.Impairment of financial assetsThe Group determines whether financial assets are impaired by estimating the future cash flow fromthe financial assets. An impairment loss is recognized only if the carrying amount of an asset exceedsthe present value of estimated future cash flows discounted at the financial asset’s original effectiveinterest rate, taking into account the value of the related collateral. Where the actual future cash flowsand less than expected, an impairment loss may arise.Depreciation and amortizationThe Group depreciates items of fixed assets and amortises items of intangible assets on the straightlinebasis over their estimated useful lives, and after taking into account their estimated residual value,commencing from the date the items of fixed assets are placed into productive use. The estimateduseful lives and dates that the Group places the items of fixed assets into productive use reflect thedirectors’ estimate of the periods that the Group intends to derive future economic benefits from theuse of the Group’s fixed assets and intangible assets.192