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)Borrowing costsBorrowing costs directly attributable to the acquisition, construction of qualifying assets, i.e., assets thatnecessarily take a substantial period of time to get ready for their intended use or sale, are capitalised aspart of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets aresubstantially ready for their intended use or sale. Investment income earned on the temporary investmentof specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costscapitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowingcosts consist of interest and other costs that the Group incurs in connection with the borrowing of funds.DividendsFinal dividends proposed by the directors are classified as a separate allocation of retained profits withinthe equity section of the statement of financial position, until they have been approved by the shareholdersin a general meeting. When these dividends have been approved by the shareholders and declared, theyare recognised as a liability.Foreign currenciesThese financial statements are presented in Renminbi, which is the Company’s functional and presentationcurrency. Each entity in the Group determines its own functional currency and items included in the financialstatements of each entity are measured using that functional currency. Foreign currency transactions recordedby the entities in the Group are initially recorded using their respective functional currency rates prevailing atthe dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translatedat the functional currency rates of exchange ruling at the end of the reporting period. Differences arising onsettlement or translation of monetary items are recognised in profit or loss.Non-monetary items that are measured in terms of historical cost in a foreign currency are translated usingthe exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in aforeign currency are translated using the exchange rates at the date when the fair value was determined.The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line withthe recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the itemwhose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognisedin other comprehensive income or profit or loss, respectively).The functional currencies of certain overseas subsidiaries are currencies other than Renminbi. As at the endof the reporting period, the assets and liabilities of these entities are translated into the presentation currencyof the Company at the exchange rates prevailing at the end of the reporting period and their income andexpenses are translated into Renminbi at the weighted average exchange rates for the year.The resulting exchange differences are recognised in other comprehensive income and accumulated in theexchange fluctuation reserve. On disposal of a foreign operation, the component of other comprehensiveincome relating to that particular foreign operation is recognised in profit or loss.354