2012 Annual Report - ZTE

ANNUAL REPORT 2012Notes to Financial Statements(Prepared under Hong Kong Financial Reporting Standards)31 December 20123. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)Estimation uncertainty (continued)Impairment of trade receivables (continued)In determining whether there is objective evidence of an impairment loss, the Group takes into considerationthe estimation of future cash flows. The amount of the impairment loss is measured as the difference betweenthe asset’s carrying amount and the present value of estimated future cash flows (excluding future creditlosses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e.,the effective interest rate computed at initial recognition). Where the actual future cash flows are less thanexpected, a material impairment loss may arise.Deferred tax assetsDeferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profitwill be available against which the losses can be utilised. Significant management judgement is required todetermine the amount of deferred tax assets that can be recognised based upon the likely timing and levelof future taxable profits together with future tax planning strategies. The carrying value of deferred tax assetsrelating to recognised tax losses at 31 December 2012 was RMB499,344,000 (2011: RMB482,340,000). Theamount of unrecognised tax losses at 31 December 2012 was RMB7,927,125,000 (2011: RMB1,784,749,000).Further details are contained in note 40 to the financial statements.Deferred development costsDeferred development costs are capitalised in accordance with the accounting policy for research anddevelopment costs in note 2.4 to the financial statements. Determining the amounts to be capitalised requiresmanagement to make assumptions regarding the expected future cash generation of the assets, discountrates to be applied and the expected period of benefits. At 31 December 2012, the best estimate of thecarrying amount of capitalised development costs was RMB2,446,934,000 (2011: RMB1,925,610,000).Write-down of inventories to net realisable valueThe Group, pursuant to the accounting policy for inventories, writes down inventories from cost to netrealisable value and makes provision against obsolete and slow-moving items by using the lower of costand net realisable value rule. The assessment of the write-down required involves management’s judgementand estimates. Where the actual outcome or expectation in future is different from the original estimate,such differences will have an impact on the carrying amounts of inventories and the write-down/write-backof in the period in which such estimate has been changed. At 31 December 2012, the carrying amount ofinventories was RMB11,442,389,000 (2011: RMB14,988,379,000).359