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Fair Value Measurement | 12 Months Ended
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Dec. 31, 2011
Fair Value Measurement |
26. | FAIR VALUE MEASUREMENT
Effective January 1, 2008, the Group adopted ASC subtopic 820-10 (“ASC 820-10”), Fair Value Measurement and Disclosure: Overall. ASC 820-10 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Although the adoption of ASC 820-10 did not impact the Group’s financial condition, results of operations or cash flow, ASC 820-10 requires additional disclosures to be provided on fair value measurement. ASC 820-10 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 — Include other inputs that are directly or indirectly observable in the marketplace. Level 3 — Unobservable inputs which are supported by little or no market activity. ASC 820-10 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset. In accordance with ASC 820-10, the Company measures trading securities and available-for-sale investments at fair value. The respective available-for-sale investments are classified within Level 3 as its valuation is based on a model utilizing unobservable inputs which require significant management judgment and estimation. Assets measured at fair value on a recurring basis are summarized below:
|  | Fair Value Measurement at December 31, 2011 Using |  |  |  |
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Unobservable inputs (Level 3) |  |  | Fair Value at December 31, 2011 |
|  | (RMB) |  |  | (RMB) |  |  | (RMB) |  |  | (RMB) |  |  | (US$) |
Available-for-sale investments |  |  | — |  |  |  | — |  |  |  | 386,851,118 |  |  |  | 386,851,118 |  |  |  | 61,464,453 |
Total |  |  | — |  |  |  | — |  |  |  | 386,851,118 |  |  |  | 386,851,118 |  |  |  | 61,464,453 |
|  | Fair Value Measurement at December 31, 2010 Using |  |  |  |
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Unobservable inputs (Level 3) |  |  | Fair Value at December 31, 2010 |
|  | (RMB) |  |  | (RMB) |  |  | (RMB) |  |  | (RMB) |
Available-for-sale investments |  |  | — |  |  |  | — |  |  |  | 423,302,661 |  |  |  | 423,302,661 |
Total |  |  | — |  |  |  | — |  |  |  | 423,302,661 |  |  |  | 423,302,661 |
The following table summarizes the valuation of the available-for-sale investments:
|  | Amount |
|  | (RMB) |
Fair value of available-for-sale investment as at January 1, 2010 |  |  | 450,966,634 |
Unrealized gain in fair value of Series A Preferred Shares in MET (see Note 12) |  |  | (73,032 | )
Unrealized loss in fair value of Series C Preferred Shares in 51.com (see Note 12) |  |  | (14,467,019 | )
Transfer in and/or out of Level 3 |  |  | — |
Effect of exchange rate change |  |  | (13,123,922 | )
Fair value of available-for-sale investment as at December 31, 2010 |  |  | 423,302,661 |
Unrealized loss in fair value of Series A Preferred Shares in MET (see Note 12) |  |  | 4,893,132 |
Unrealized loss in fair value of Series C Preferred Shares in 51.com (see Note 12) |  |  | (20,890,689 | )
Transfer in and/or out of Level 3 |  |  |  |
Effect of exchange rate change |  |  | (20,453,986 | )
Fair value of available-for-sale investment as at December 31, 2011 |  |  | 386,851,118 |
Fair value of available-for-sale investment as at December 31, 2011 (US$) |  |  | 61,464,453 |
The fair value of available-for-sale investment in Series C Preferred Share of 51.com as of December 31, 2010 and 2011 was estimated using an enterprise value allocation (“EVA”) model. The EVA model requires inputs of highly subjective assumptions including the expected stock price volatility and the probability of occurrence under three different scenarios (which is based on management reasonable estimation), namely 1) an initial public offering occurs (“IPO”), 2) 51.com liquidates (“Liquidation”) and 3) 51.com’s preferred share are redeemed at maturity (“Redemption”). For the expected volatilities, the Company has made reference to historical volatilities of several comparable companies. The risk-free rate is based on the yield of U.S. Dollar China Sovereign Bond as of December 31, 2010 and 2011 with the term corresponding to the maturity of the preferred shares. The fair value of the Series C Preferred Share of 51.com was estimated using the following assumptions:
|  | December 31, |
|  | 2010 |  |  | 2011 |
Risk-free interest rates |  |  | 1.27 | % |  |  | 0.72 | %
Expected volatility |  |  | 38.04 | % |  |  | 50.92 | %
Probabilities of different scenarios: |  |  |  |  |  |  |  |
- IPO |  |  | 50 | % |  |  | 25 | %
- Liquidation |  |  | 25 | % |  |  | 25 | %
- Redemption |  |  | 25 | % |  |  | 50 | %
The fair value of the 100% equity interest of 51.com was determined based on an independent valuation using an income approach. In September 2009, the Company made an investment in MET’s Series A Preferred Shares with both redemption and conversion features. This investment is recognized as an available-for-sale investment and its fair value was estimated using an enterprise value allocation (“EVA”) model as of December 31, 2011. The EVA model requires inputs of highly subjective assumptions including the expected stock price volatility and the probability of occurrence under three different scenarios (which is based on management reasonable estimation), namely 1) an initial public offering occurs (“IPO”), 2) MET liquidates (“Liquidation”) and 3) MET’s preferred share are redeemed at maturity (“Redemption”). For the expected volatilities, the Company has made reference to historical volatilities of several comparable companies. The risk-free rate is based on the yield of U.S. Dollar China Sovereign Bond as of December 31, 2011 with the term corresponding to the maturity of the preferred shares. The fair value of the MET’s Series A Preferred Shares was estimated using the following assumptions:
|  | December 31, |
|  | 2010 |  |  | 2011 |
Risk-free interest rates |  |  | 1.87 | % |  |  | 0.35 | %
Expected volatility |  |  | 61.71 | % |  |  | 52.36 | %
Probabilities of different scenarios: |  |  |  |  |  |  |  |
- IPO |  |  | 50 | % |  |  | — |
- Liquidation |  |  | 25 | % |  |  | 25 | %
- Redemption |  |  | 25 | % |  |  | 75 | %
The fair value of the 100% equity interest of MET was determined based on an independent valuation using an income approach. In accordance with ASC 820, the Company measures acquired intangible assets, goodwill and impairment of intangible assets at fair value. These assets are classified within Level 3 because they are valued using an income approach using discounted cash flows derived on management’s assumptions and estimates as further discussed in Notes 2.9, 2.10, and 7. Assets measured at fair value on a non-recurring basis are summarized as below:
|  | Fair Value at December 31, 2010 |  |  | Total impairment loss recognized for the year ended December 31, 2010 |  |  | Fair Value at December 31, 2011 |  |  | Total impairment loss recognized for the year ended December 31, 2011 |
|  | (RMB) |  |  |  |  |  | (RMB) |  |  | (RMB) |
Acquired intangible assets-software |  |  | 1,146,029 |  |  |  | — |  |  |  | — |  |  |  | — |
Goodwill |  |  | 15,977,373 |  |  |  | — |  |  |  | — |  |  |  | — |
KOK 3 game software |  |  | — |  |  |  | 46,557,669 |  |  |  | — |  |  |  | — |
The above impairment loss was included in “Impairment of intangible assets” in the consolidated statements of operations and comprehensive income.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13504-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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