Consolidated Financial Statements - Acer Group

18ACER INCORPORATED AND SUBSIDIARIESNotes to Consolidated Financial Statements (continued)Contributions for the defined contribution retirement plans are expensed during the year in whichemployees render services.(27) Government grantsGovernment grants are recognized as other income or deduction of related costs or expenses whenthere is reasonable assurance that the conditions attached to the grants are met, and the grants will bereceived.Government grants conforming to the conditions attached to the grants are recognized in profit or lossover the periods in which the related costs or expenses for which the grants are intended tocompensate are incurred. Recognition of government grants in profit or loss on a receipt basiswould be acceptable only if no basis existed for allocating a grant to periods other than one in which itwas received.(28) Income taxesIncome taxes are accounted for under the asset and liability method. Deferred income tax isdetermined based on differences between the financial statements and tax basis of assets and liabilitiesusing enacted tax rates in effect during the years in which the differences are expected to reverse.The income tax effects resulting from taxable temporary differences are recognized as deferredincome tax liabilities. The income tax effects resulting from deductible temporary differences, netoperating loss carryforwards, and income tax credits are recognized as deferred income tax assets.The realization of the deferred income tax assets is evaluated, and if it is considered more likely thannot that the asset will not be realized, a valuation allowance is recognized accordingly. When achange in the tax rate is enacted, the Consolidated Companies recalculate the deferred tax assets andliabilities using the new tax rate in the year of change and any resulting variances are recognized asincome tax expense or benefit accordingly.Classification of the deferred income tax assets or liabilities as current or noncurrent is based on theclassification of the related asset or liability. If the deferred income tax asset or liability is not directlyrelated to a specific asset or liability, then the classification is based on the expected realization dateof the asset or liability.If a valuation allowance is recognized at the acquisition date for deferred tax assets acquired throughbusiness combination accounted for using the purchase method of accounting, the income tax benefitrecognized as a result of the elimination of valuation allowance subsequent to the acquisition is to beapplied first to reduce goodwill related to the acquisition. The remaining tax benefit, if any, isapplied to reduce income tax expense attributable to continuing operations.According to the ROC Income Tax Act, undistributed earnings, if any, are subject to 10% retainedearnings surtax. This surtax is charged to income tax expense in the following year when thestockholders decide not to distribute the earnings.(Continued)