APC 2004 Annual Report Download - page 68

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1.7 - Intangible assets
Costs incurred by the Group in developing computer
software for internal use are generally expensed when
incurred. However for external and internal costs relat-
ed to implementing enterprise resource planning
(ERP) applications, such costs are deferred and amor-
tized over the period these applications are used,
which generally does not exceed five years.
Brands corresponding to identifiable assets of acquired
companies are recognized in the balance sheet on
the basis of third¬party appraisals. Their value is reg-
ularly tested for impairment.
Other intangible assets, other than brands, are amor-
tized on a straight-line basis over the periods to be
benefited or the period where such assets are pro-
tected by intellectual property laws.
1.8 - Property, plant and equipment
Land, buildings and equipment are recorded at cost.
Property, plant and equipment are depreciated on a
straight-line basis over the estimated useful lives of
the assets, as follows:
Buildings 20 to 40 years
Machinery and equipment 3 to 10 years
Other 3 to 12 years
For operating fixed assets, the useful life is generally
defined as the period that is expected to benefit from
the operations of such fixed assets. However, when a
production line is scheduled to be halted or closed in
advance of the originally expected useful life, the
depreciation period is reduced.
When the Group enters into transactions that qualify
as capital leases, the leased assets are capitalized
and the related debt is recorded as a liability.
1.9 - Investments and marketable securities
Investments are reported at cost. Each year, the car-
rying value is compared to the recoverable amount
and the difference is recorded as an expense in the
consolidated statement of income. The recoverable
amount is determined by reference to the Group's
equity in the underlying net assets, the expected
future profitability and business prospects of the com-
pany and, in the case of listed securities, the market
value of the stock.
1.10 - Impairment of long-lived assets
Goodwill is tested for impairment at each year-end
and an exceptional amortization charge is recorded
when the net book value exceeds the recoverable
amount, as measured by the discounted free cash
flow method, using a rate of 8.5 % (weighted average
cost of capital).
For fixed assets including real estate and other non-
operating fixed assets, the Group has a policy of reg-
ularly reviewing the value of these assets for insur-
ance purposes and for comparison with market val-
ues of real estate. When those reviews show a per-
manent decline of market or insurance value over the
net book value, an impairment reserve is recorded for
the difference between the net book value and fair
value.
For other long-lived assets (including intangible
assets), management regularly receives third-party
appraisals, market valuations and other financial and
business based valuations. When these valuations
show a permanent reduction of the recoverable
amount over historical costs, impairment reserves are
taken or depreciation is recorded.
1.11 - Inventories and work in process
Inventories and work in process are stated at the
lower of cost (determined by the FIFO or weighted-
average methods) or estimated net realizable value.
The cost of work-in-process, semi-finished and fin-
ished products includes direct materials and labor
costs, subcontracting costs and production overhead.
1.12 - Accounts receivable
An allowance for doubtful accounts is recorded when
it is probable that receivables will not be collected and
the amount is possible to estimate. The identification
of a doubtful account as well as the related amount of
the provision are based on the analysis of our histori-
cal experience of write-offs, the analysis of an aging
schedule, and a detailed assessment of specific
accounts receivable and related credit risks. Once it is
known with certainty that a doubtful account will not
be collected, the doubtful account and its related
allowance are written off against the income state-
ment.
The Group's accounts receivable are generated from
sales to customers who are economically and geo-
graphically widely dispersed. Consequently, the
Group believes that there is no significant concentra-
tion of credit risk.
1.13 - Deferred taxes
Deferred taxes, corresponding to temporary differ-
ences between the tax basis and reporting basis of
consolidated assets and liabilities, are recorded using
the liability method. Deferred tax assets are recog-
nized when it is probable that they will be realized at
a reasonably determinable date.
Future tax benefits arising from the utilization of tax
loss carryforwards (including amounts available for
carryforward without time limit) are recognized only
when they can reasonably be expected to be realized.
Deferred tax assets and liabilities are discounted
where significant and when reversals can be reliably
scheduled.