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)Estimation uncertainty (continued)Deferred development costsIn determining the amount of capitalization, the management must make assumptions concerning theexpected future cash flow, applicable discount rate and expected beneficial period.Deferred tax assetsDeferred tax assets are recognized for all unused tax losses, to the extent that it is likely that taxableprofit will be available to utilize these unused tax losses. Significant judgments are needed frommanagement to estimate the timing and amount of taxable profit in the future, with tax planningstrategies, to determine the amount of the deferred tax assets that should be recognized.Provision for inventory impairmentThe impairment of inventory to its net realizable value is based on the marketability and net realizablevalue of the inventory. The determination of the impairment value requires the acquisition of conclusiveevidence by the management, who should also take into account factors such as the purpose ofstocking the inventory and the impact of post-balance sheet date events before making judgmentsand estimates. The difference between the actual outcome and the original estimates shall affect thebook value of the inventory and charge or reversal of impairment provision for the period during whichthe estimates were revised.Provision for warrantyProvision for warranties is recognised on a best-estimate basis according to the warranty period,supply volume of the product concerned and past data and experience on the performance of warrantyservices, taking into account risks and uncertainties relating to contingencies and the time value ofcurrency.Fair value estimates of investment propertiesThe best evidence of fair value is given by current prices in an active market for similar lease andother contracts. In the absence of relevant information, the management shall determine the relevantamount within the range of reasonable fair value estimates. The management’s judgment will be basedon market rental prices of similar properties under current leases in an active market and discountedcash flow projections based on reliable estimates of future cash flows using discount rates that reflectcurrent market assessments of the uncertainty in the amount and timing of the cash flows. Principalassumptions adopted by the Group in estimating fair values include market rents for similar propertiesat the same location and under the same conditions, discount rates, vacancy rates, projected futuremarket rent and maintenance cost. The carrying value of investment property as at 31 December 2012was RMB1,686,158,000 (31 December 2011: Nil).193