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)Government grantsGovernment grants are recognised at their fair value where there is reasonable assurance that the grant willbe received and all attaching conditions will be complied with. When the grant relates to an expense item,it is recognised as income on a systematic basis over the period that the costs, which it is intended tocompensate, are expensed. Where the grant relates to an asset, the fair value is credited to other payablesor other long-term payable accounts and is released to profit or loss over the expected useful life of therelevant asset by equal annual instalments.Revenue recognitionRevenue is recognised when it is probable that the economic benefits will flow to the Group and when therevenue can be measured reliably, on the following bases:(a)(b)(c)(d)(e)(f)income from the sale of goods, when the significant risks and rewards of ownership have beentransferred to the buyer, provided that the Group maintains neither managerial involvement to thedegree usually associated with ownership, nor effective control over the goods sold;income from the telecommunications system contracts, on the percentage of completion basis, asfurther explained in the accounting policy for “Construction contracts” above;income from the rendering of services, when services are rendered;interest income, on an accrual basis using the effective interest method by applying the rate that exactlydiscounts the estimated future cash receipts over the expected life of the financial instrument to thenet carrying amount of the financial asset;dividend income, when the shareholders’ right to receive payment has been established; andfor contracts involving multiple deliverables, where the deliverables are governed by more than oneauthoritative accounting standard, the Group generally evaluates each deliverable to determine whetherit represents a separate unit of accounting based on the following criteria: (i) whether the delivereditem has value to the customer on a stand-alone basis and (ii) whether the contract that includes ageneral right of return relative to the delivered item, delivery or performance of the undelivered item(s) isconsidered probable and substantially in the control of the Group. The Group’s determination of whetherdeliverables within a multiple element arrangement can be treated separately for revenue recognitionpurposes involves significant estimates and judgements, such as whether delivered elements havestand-alone value to the customer. The Group’s assessment of the accounting units in an arrangementand/or its ability to establish fair values could significantly change the timing of revenue recognition.Arrangement consideration shall be allocated at the inception of the arrangement to all deliverableson the basis of their relative selling price (the relative selling price method). When applying the relativeselling price method, the selling price for each deliverable shall be determined using vendor-specificobjective evidence of selling price, if it exists; otherwise, third-party evidence of selling price. If neitherGroup-specific objective evidence nor third-party evidence of selling price exists for a deliverable, thevendor shall use its best estimate of the selling price for that deliverable when applying the relativeselling price method. In deciding whether the Group can determine vendor-specific objective evidence orthird-party evidence of selling price, the Group shall not ignore information that is reasonably availablewithout undue cost and effort.351