2012 Annual Report - ZTE

ANNUAL REPORT 2012Notes to Financial Statements(Prepared under Hong Kong Financial Reporting Standards)31 December 20122.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Cash and cash equivalentsFor the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cashon hand and demand deposits, and short-term highly liquid investments that are readily convertible intoknown amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturityof generally within three months when acquired.For the purpose of the statement of financial position, cash and cash equivalents comprise cash on handand at banks, including term deposits, which are not restricted as to use.ProvisionsA provision is recognised when a present obligation (legal or constructive) has arisen as a result of a pastevent and it is probable that a future outflow of resources will be required to settle the obligation, providedthat a reliable estimate can be made of the amount of the obligation.When the effect of discounting is material, the amount recognised for a provision is the present value atthe end of the reporting period of the future expenditures expected to be required to settle the obligation.The increase in the discounted present value amount arising from the passage of time is included in financecosts in the statement of comprehensive income.Provision for warranties granted by the Group on handsets is recognised based on sales volume and pastexperience of the level of repairs and returns.A contingent liability recognised in a business combination is initially measured at its fair value. Subsequently,it is measured at the higher of (i) the amount that would be recognised in accordance with the generalguidance for provisions above; and (ii) the amount initially recognised less, when appropriate, cumulativeamortisation recognised in accordance with the guidance for revenue recognition.Income taxIncome tax comprises current and deferred tax. Income tax relating to items recognised outside profit orloss is recognised outside profit or loss, either in other comprehensive income or directly in equity.Current tax assets and liabilities for the current and prior periods are measured at the amount expectedto be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have beenenacted or substantively enacted by the end of the reporting period, taking into consideration interpretationsand practices prevailing in the countries in which the Group operates.Deferred tax is provided, using the liability method, on all temporary differences at the end of the reportingperiod between the tax bases of assets and liabilities and their carrying amounts for financial reportingpurposes.349