APC 2005 Annual Report Download - page 77

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Software implementation
External and internal costs for the programming, cod-
ing and testing of enterprise resource planning (ERP)
applications are capitalized and amortized over the
applications’ useful lives.
1.9 - Property, plant and equipment
Land, buildings, plant and equipment are carried at
cost, less accumulated depreciation and any accumu-
lated impairment losses, in accordance with the cost
model provided for in IAS 16 – Property, plant and
equipment.
Each part of an item of property, plant and equipment
with a useful life that is different from that of the item
as a whole is depreciated separately on a straight-line
basis. The main useful lives are as follows:
Buildings 20 to 40 years
Plant and equipment 3 to 10 years
Other 3 to 12 years
The useful life of operating assets, such as production
lines, reflects the related products’ estimated life cycles.
Useful lives are reviewed periodically and may be
adjusted prospectively if appropriate.
The depreciable amount of an asset is determined
after deducting its residual value, when the residual
value is material.
Depreciation is charged to the income statement or
included in the production cost of inventory or the cost
of internally-generated intangible assets. It is recog-
nized under "Cost of sales," "Research expenses"
or "Selling, general and administrative expenses",
depending on the case.
Property, plant and equipment are tested for impair-
ment when there is any indication that their recover-
able amount may be less than their carrying amount.
Impairment losses are charged to the income state-
ment under "Other operating income/(expense)".
Assets held for sale
Assets held for sale are no longer depreciated and are
recorded separately in the balance sheet under
"Assets held for sale" at the lower of amortized cost
and net realizable value.
Leases
Finance leases, defined as leases that transfer sub-
stantially all the risks and rewards of ownership to the
lessee, are recognized as an asset and a liability.
Leases that do not transfer substantially all the risks
and rewards of ownership are classified as operating
leases and the related payments are recognized as an
expense on a straight-line basis over the lease term.
Borrowing costs
Borrowing costs incurred during the construction or
acquisition of property, plant and equipment and
intangible assets are expensed when incurred, in
accordance with the recommended treatment under
IAS 23 –
Borrowing Costs.
1.10 - Impairment of assets
In accordance with IAS 36 – Impairment of Assets –
the recoverable amount of long-lived assets is
assessed as follows:
All depreciable and amortizable property, plant and
equipment and intangible assets are reviewed at each
balance sheet date to determine whether there is any
indication that the asset may be impaired. Indications
of impairment are identified on the basis of external or
internal information. If such an indication exists, the
Group tests the asset for impairment by comparing its
carrying amount to the higher of fair value less costs
to sell and value in use.
Non-amortizable intangible assets and goodwill are
tested for impairment annually and when there is any
indication that the asset may be impaired.
Value in use is determined by discounting estimated
future cash flows that will be generated by the tested
assets, generally over a period of not more than five
years. Estimated future cash flows are based on man-
agement’s economic assumptions and operating fore-
casts. The discount rate corresponds to Schneider
Electric’s weighted average cost of capital (7.5% at
December 31, 2005 and 8.5% at December 31,
2004), plus a risk premium depending on the region
in question.
Impairment tests are performed at the level of the
cash-generating unit (CGU) to which the asset
belongs. A cash-generating unit is the smallest group
of assets that generates cash inflows that are largely
independent of those cash flows from other assets or
groups of assets. At Schneider Electric, CGUs gener-
ally correspond to the Operating Divisions (Europe,
North America, International and Asia-Pacific). Each
of the Growth Platform businesses is also a CGU.
Goodwill is allocated to a CGU when initially recog-
nized. This allocation is made on the basis used to
track the performance of Group operations and to
assess the benefits derived from the synergies of the
business combination.
If the recoverable amount of an asset or CGU is lower
than its carrying amount, an impairment loss is recog-
nized. To the extent possible, impairment losses on
CGUs comprising goodwill are recorded as a deduc-
tion from goodwill.
1.11 - Non-current financial assets
Investments in non-consolidated companies are classi-
fied as available-for-sale financial assets. They are ini-
tially recorded at cost and subsequently measured at
fair value, when fair value can be reliably determined.
The fair value of equity instruments listed in an active
market corresponds to the quoted price on the bal-
ance sheet date.
In cases where fair value can not be reliably deter-
mined, the instruments are measured at cost net of
any accumulated impairment losses. The recoverable
amount is determined by reference to the Group’s
equity in the underlying entity’s net assets and the
entity’s expected future profitability and business out-
look. This rule is applied in particular to equity instru-
ments that do not have a quoted market price in an
active market.
Consolidated Financial Statements