2019 Annual Report (^113)
(vi) Income tax
The Group is subject to income taxes in
various jurisdictions. Significant judgement is
required in determining the Group’s provision
for income taxes. There are many transactions
and computations for which the ultimate tax
determination is uncertain during the ordinary
course of business. The Group recognises
liabilities in relevant accounting period based
on estimates of the probabilities of whether
additional taxes will be due. Where the final
tax outcome of these matters is different from
the amounts that were initially recorded, such
differences will impact current and deferred tax
liabilities and the taxation charge for the year.
(vii) Provision for warranties
As explained in note 29(b), the Group makes
provision for assurance warranties in respect of
its Consumer Business and certain Enterprise
Business products, taking into account
the Group’s recent claim experience and
anticipated claim rates for affected products.
As the Group is continually upgrading its
product designs and launching new models,
it is possible that the recent claim experience
is not indicative of future claims that it will
receive in respect of past sales. Any increase or
decrease in the provision would affect profit or
loss in future years.
(viii) Other provisions
The Group makes provisions for onerous
contracts, outstanding litigations and claims
based on project budgets, contract terms,
available knowledge, legal advice and past
experience. The Group recognises provisions
to the extent that it has a present legal or
constructive obligation as a result of a past
event; that it is probable that an outflow
of resources will be required to settle the
obligation; and that the amount can be reliably
estimated. Judgement is required in making
such estimates and the ultimate outcome may
be different.
The Group makes provisions for onerous
contracts in respect of losses arising from
non-cancellable procurement agreements when
there is a change in the Group’s procurement
demands such that the Group may not proceed
with committed purchase orders or use the
goods concerned. Provisions are made taking
into account the contract terms, the suppliers’
losses resulting from the Group’s termination
of the agreements and the extent to which
the goods under the committed purchase
orders will no longer be used in the Group’s
production. Judgement is required in making
the estimates and the ultimate outcome may
be different. The Group regularly updates its
production plan and procurement demands,
estimates probable losses, and adjusts
provisions accordingly.
(ix) Deferred tax assets
The key source of estimation uncertainty
lies in the recognition of deferred tax assets
arising from unused tax losses and deductible
temporary differences. As explained in note
3(o), all deferred tax assets are recognised
to the extent that it is probable that future
taxable profits will be available against which
they can be utilised. Adverse changes to the
operating environment or changes in the
Group’s organisation structure could result in
a future write-down of the deferred tax assets
recognised.
(x) Determining the lease term
In determining the lease term at the
commencement date for leases that include
renewal options exercisable by the Group, the
Group evaluates the likelihood of exercising
the renewal options taking into account all
relevant facts and circumstances that create an
economic incentive for the Group to exercise
the option. The lease term is reassessed when
there is a significant event or significant
change in circumstance that is within the
Group’s control. Any increase or decrease
in the lease term would affect the amount
of lease liabilities and right-of-use assets
recognised in future years.
coco
(coco)
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