2012 Annual Report - ZTE

ZTE CORPORATIONNotes to Financial Statements(Prepared under Hong Kong Financial Reporting Standards)31 December 20122.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Investments and other financial assets (continued)Available-for-sale financial investmentsAvailable-for-sale financial investments are non-derivative financial assets in listed and unlisted equityinvestments and debt securities. Equity investments classified as available for sale are those which areneither classified as held for trading nor designated as at fair value through profit or loss. Debt securitiesin this category are those which are intended to be held for an indefinite period of time and which may besold in response to needs for liquidity or in response to changes in market conditions.After initial recognition, available-for-sale financial investments are subsequently measured at fair value, withunrealised gains or losses recognised as other comprehensive income in the available-for-sale investmentrevaluation reserve until the investment is derecognised, at which time the cumulative gain or loss isrecognised in profit or loss in other income, or until the investment is determined to be impaired, when thecumulative gain or loss is reclassified from the available-for-sale investment revaluation reserve to profit orloss in other expenses.Interest and dividends earned whilst holding the available-for-sale financial investments are reported asinterest income and dividend income, respectively and are recognised in profit or loss as other income inaccordance with the policies set out for “Revenue recognition” below.When the fair value of unlisted equity investments cannot be reliably measured because (a) the variability inthe range of reasonable fair value estimates is significant for that investment or (b) the probabilities of thevarious estimates within the range cannot be reasonably assessed and used in estimating fair value, suchinvestments are stated at cost less any impairment losses.The Group evaluates whether the ability and intention to sell its available-for-sale financial assets in thenear term are still appropriate. When, in rare circumstances, the Group is unable to trade these financialassets due to inactive markets and management’s intent to do so significantly changes in the foreseeablefuture, the Group may elect to reclassify these financial assets. Reclassification to loans and receivablesis permitted when the financial assets meet the definition of loans and receivables and the Group has theintent and ability to hold these assets for the foreseeable future or to maturity. Reclassification to the heldto-maturitycategory is permitted only when the Group has the ability and intent to hold until the maturitydate of the financial asset.For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at thedate of reclassification becomes its new amortised cost and any previous gain or loss on that asset thathas been recognised in equity is amortised to profit or loss over the remaining life of the investment usingthe effective interest rate. Any difference between the new amortised cost and the maturity amount is alsoamortised over the remaining life of the asset using the effective interest rate. If the asset is subsequentlydetermined to be impaired, then the amount recorded in equity is reclassified to profit or loss.340