APC 2005 Annual Report Download - page 113

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Consolidated Financial Statements
29.2 - Adjustments arising from the first-time
adoption of IFRS
The opening IFRS balance sheet at January 1, 2004
has been prepared using the following options and
exemptions allowed under IFRS 1-
First Time Adop-
tion Of IFRS:
Business combinations carried out prior to January
1, 2004 have not been restated.
Cumulative actuarial gains and losses for defined
benefit plans have been recognized, by adjusting
opening retained earnings.
Cumulative translation adjustments have been reset
to zero at January 1, 2004, by adjusting opening
retained earnings.
IAS 32 and IAS 39 have been applied prospectively
from January 1, 2005. As a result, the 2004 financial
statements have not been restated for these stan-
dards.
The other options available under IFRS 1 have not
been used.
Income statement presentation
The presentation of the income statement has been
changed to comply with IAS 1 –
Presentation of Finan-
cial Statements.
The main change concerns items
classified as exceptional in the French GAAP
accounts, which are reported above the line in the
IFRS income statement, in operating revenue or
expense.
In addition, development costs have been reclassified,
as explained in note 29.3.1 below.
29.3 - Changes in
accounting principles and policies
29.3.1 - Intangible assets
Intangible assets generated by development activities
D
evelopment costs for new products and compre-
hensive product upgrades may be capitalized under
IAS 38.
In 2004, systems were set up to track and capitalize
these costs. Only development costs for new products
launched since 2004 are capitalized in the IFRS
accounts.
Development costs capitalized in 2004 amounted to
46 million at December 31, 2004, before tax. These
costs are being amortized over the estimated life of the
underlying technology, which averages 5 years.
A substantial proportion of development costs con-
sists of maintenance or process engineering costs for
existing products, which do not qualify for capitaliza-
tion under IAS 38. In the IFRS accounts, these costs
continue to be charged directly to the income state-
ment; however, they are reclassified under "Cost of
sales" and included in the carrying amount of invento-
ries where appropriate. Only research costs continue
to be reported under "Research and development
expenses", as they cannot be capitalized.
The resulting changes in the presentation of R&D costs
are as follows:
- Qualifying development costs are recorded in the
balance sheet (46 million at December 31, 2004).
- Maintenance and process engineering costs are
reported under "Cost of sales" and included in the
value of inventories, in an amount of 195 million at
December 31, 2004 (see note 29.3.3).
- The amount reported under "Research and develop-
ment expenses" corresponds solely to research costs.
Intangible assets previously recognized in the bal-
ance sheet
All intangible assets carried in the opening French
GAAP balance sheet at January 1, 2004 comply with
the definition contained in IAS 38 –
Intangible Assets.
Deferred charges recognized in the French GAAP bal-
ance sheet under "Other accounts receivable and pre-
paid expenses" have been reclassified under intangi-
ble assets (1 million at January 1, 2004 and 2 mil-
lion at December 31, 2004) or eliminated (10 million
at January 1, 2004 and 12 million at December 31,
2004).
No changes have been made to amortization periods.
Intangible assets acquired in connection with busi-
ness combinations
Under IFRS 3 –
Business Combinations, intangible
assets of the acquired company must be recognized
separately from goodwill where the assets concerned
qualify for recognition as intangible assets under IAS
38. These intangible assets are also recognized in the
French GAAP accounts and adoption of IFRS 3 does
not therefore result in any adjustments to the 2004
accounts.
29.3.2 - Goodwill
As explained above, the Group has decided not to
restate business combinations carried out prior to Jan-
uary 1, 2004.
Goodwill arising on business combinations carried out
in 2004 (and final adjustments to goodwill arising on
business combinations carried out in 2003) has been
reported in the French GAAP accounts in accordance
with IFRS 3 –
Business Combinations .
Net goodwill carried in the opening balance sheet at
January 1, 2004 is no longer amortized.
This change of method had a favorable impact on prof-
it of 217 million in 2004 and on the balance sheet of
209 million at December 31, 2004, after taking into
account translation adjustments.
Goodwill has also been adjusted by 176 million at
December 31, 2004 to take into account deferred tax
liabilities recognized on brands purchased in 2004, in
application of IAS 12.
French GAAP (standard CRC 2002-10) comply with
IAS 36 -
Impairment Of Assets, and goodwill has been
tested for impairment on the same basis in both the
French GAAP and the IFRS accounts.