08:54 SOLOMON SYSTECH<02878> - Results Announcement (2) The Reorganisation has been reflected in the accounts by regarding the Group comprising the Company and its subsidiaries as a continuing entity. Accordingly, the accounts for the year ended 31st December 2003 have been prepared using the merger basis of accounting and the consolidated results include the results of the subsidiaries comprising the Group as if the current structure had been in existence throughout the period presented. The accounts have been prepared in accordance with accounting principles generally accepted in Hong Kong and comply with accounting standards issued by the Hong Kong Institute of Certified Public Accountants (" HKICPA"). They have been prepared under the historical cost convention. The HKICPA has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards ("new HKFRSs") which are effective for accounting periods beginning on or after 1 January 2005. The Group has not early adopted these new HKFRSs in the financial statement for the year ended 31 December 2004. The Group has already commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a significant impact on its results of operations and financial position. 2 Principal accounting policies The principal accounting policies adopted in the preparation of these accounts are set out below: (a) Group accounting (i) Consolidation The consolidated accounts include the accounts of the Company and its subsidiaries made up to 31st December. Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power; has the power to govern the financial and operating policies; to appoint or remove the majority of the members of the board of Directors; or to cast majority of votes at the meetings of the board of Directors. The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss account from the effective date of acquisition or up to the effective date of disposal, as appropriate. All significant intercompany transactions and balances within the Group are eliminated on consolidation. In the Company's balance sheet the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable. (ii) Associated companies An associated company is a company, not being a subsidiary or a joint venture, in which an equity interest is held for the long-term and significant influence is exercised in its management. The consolidated profit and loss account includes the Group's share of the results of the associated company for the year and the consolidated balance sheet includes the Group's share of the net assets of the associated company and goodwill (net of amortisation) on acquisition. Unrealised gains on transactions between the Group and its associated company are eliminated to the extend of the Group's interest in the associated company; unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. (b) Intangibles (i) Patents and intellectual property Expenditure on acquired patents and intellectual property is capitalised and amortised using the straight-line method over their expected useful lives of five years. (ii) Goodwill Goodwill comprises: (a) the excess of the cost of an acquisition over the fair value of the Group's share of the net assets of the acquired subsidiaries/ associated company; and (b) the excess of the costs of an acquisition over the fair value ascribed to the acquired business including patents and intellectual property, at the date of acquisition. Goodwill is recognised as an asset and amortised using straight- line method over their estimated useful lives. Goodwill arising on acquisitions of business including patents and intellectual property is amortised over 5 years. Goodwill arising on other acquisitions is generally amortised over 2-5 years.