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## 2. Summary of significant accounting policies continued 

## Share-based employee compensation awards 

##  Stock options 

<img src='content_image/150157.jpg'>

Share-based payment transactions for stock options are measured by reference to the fair value at the date on which they are granted. The fair value of share-based payments is determined using the Black-Scholes model, which involves making assumptions about interest rates, volatilities, market conditions, dividend yield, expected life and fluctuation. Due to the nature of these assumptions, such estimates are subject to significant uncertainty. In 2012, the expense related to stock options was US$5,466,000 (2011: US$5,279,000). For further information on stock options please refer to note 21.A and 21.D. 

##  Executives’ Long Term Incentive Plan 

The fair value of the awards is recognised as a compensation expense with a corresponding increase in equity. The fair value is measured at grant date, using a Monte Carlo Model, based on standard inputs such as the Company’s share price, interest rate, and volatility of the Company’s share price, dividend yield and expected life. Due to the nature of these assumptions, such estimates are subject to significant uncertainty. In 2012, an expense of US$74,000 was booked (2011: US$1,050,000). Further information regarding LTIP is provided in note 21.B and 21.D. 

##  Executives Incentive Plan 

The fair value of the awards is recognised as a compensation expense with a corresponding increase in equity. The fair value is measured at grant date, using a Monte Carlo Model, based on standard inputs such as the Company’s share price, interest rate, and volatility of the Company’s share price, dividend yield and expected life. Due to the nature of these assumptions, such estimates are subject to significant uncertainty. In 2012, an expense of US$1,415,000 was booked (2011: nil). Further information regarding EIP is provided in note 21.C and 21.D. 

## Customer-specific research and development 

For the determination of revenue and costs for customer-specific research and development contracts, management judgement is required. It is, therefore, necessary to determine the stage of completion based on the progress made towards completing the particular project, as well as the contract revenue and the contract costs. Besides an advance payment received from one customer, at 31 December 2012 no receivables or liabilities from constructions contracts were outstanding (2011: nil). 

## Self-developed intangible assets 

Development costs are capitalised in accordance with the accounting policy mentioned above, i.e. they are recorded on a cost basis. However, initial capitalisation of costs is based on management’s judgement that technological and economical feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model. The amortisation start correlates with the first delivery of products to the customer. In determining the probable future economic benefits of the self-developed intangible asset, management makes assumptions regarding the expected future cash generation of the assets, discount rates to be applied and the expected period of benefits. At 31 December 2012, the carrying amount of capitalised development costs was US$13,425,000 (2011: US$16,041,000), please refer to note 12. 

Actual results may differ from all of the above judgements and estimates. 

