APC 2006 Annual Report Download - page 106

Consolidated financial statements at December 31, 2006
Changes in fair value are accumulated in equity under
other reserves up to the date of sale, at which time
they are recognized in the income statement. Unreal-
ized losses on assets that are considered to be perma-
nently impaired are recorded under "Finance costs and
other financial income and expense, net".
Loans, recorded under other financial assets, are car-
ried at amortized cost and tested for impairment if
there is any indication that their recoverable amount
may be less than their carrying amount. Long-term
financial receivables are discounted when the impact
of discounting is meaningful.
1.12 - Inventories
and work in process
Inventories and work in process are stated at the lower
of cost (generally determined by the weighted-average
cost method) or estimated net realizable value.
Net realizable value corresponds to the estimated sell-
ing price net of remaining expenses to complete
and/or sell the products.
Impairment losses on materials are recognized in
"Cost of sales" and on finished products in "Selling,
general and administrative expenses".
The cost of work in process, semi-finished and finished
products includes direct materials and labor costs,
subcontracting costs, production overheads based on
normal capacity utilization rates and the portion of
research and development costs related to the produc-
tion process (corresponding to the amortization of cap-
italized projects in production and product and range
maintenance costs).
1.13 - Accounts receivable
An allowance for doubtful accounts is recorded when it
is probable that receivables will not be collected and
the amount of the loss can be reasonably estimated.
Doubtful accounts and the related allowances are
identified and determined based on historical loss
experience, the age of the receivables and a detailed
assessment of related credit risks. Once it is known
with certainty that a doubtful account will not be col-
lected, the doubtful account and the related allowance
are written off to the income statement.
Accounts receivable in more than one year are dis-
counted in cases where the discounting adjustment is
material.
1.14 - 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 recovered at
a reasonably determinable date.
Future tax benefits arising from the utilization of tax
loss carry forwards (including amounts available for
carry forward without time limit) are recognized only
when they can reasonably be expected to be realized.
Deferred tax assets and liabilities are not discounted.
Deferred tax assets and liabilities that concern the
same unit and are expected to reverse in the same
period are netted off.
1.15 - Cash and cash equivalents
Cash and cash equivalents presented in the balance
sheet consist of cash, bank accounts, term deposits of
three months or less and other liquid marketable secu-
rities. Substantially all marketable securities represent
short-term instruments that can be easily converted
into a determinable cash amount, such as commercial
paper, mutual funds and equivalents. In light of their
nature and maturities, these instruments carry virtual-
ly no risk of impairment. The Group treats them as
cash equivalents.
1.16 - Treasury stock
Schneider Electric shares held by the parent company
or by fully consolidated companies are measured at
cost and deducted from equity. They are held at their
acquisition price until sold.
Gains and losses on the sale of treasury stock are rec-
ognized in equity, net of tax.
1.17 - Pensions and other post-
employment benefit obligations
Depending on local practices and laws, the Group’s
subsidiaries participate in pension, termination benefit
and other long-term benefit plans. Benefits paid under
these plans depend on such factors as seniority, com-
pensation levels and payments into mandatory retire-
ment programs.
Defined contribution plans
Payments made under defined contribution plans are
recorded in the income statement, in the year of pay-
ment and are in full settlement of the Group’s liability.
Defined benefit plans
The present value of defined benefit obligations is
determined using the projected unit credit method.
The amount recognized in the balance sheet corre-
sponds to the present value of the obligation, adjusted
for unrecognized past service cost and reduced by the
fair value of plan assets at the balance sheet date.
If the plan has a surplus (i.e. the fair value of plan
assets is greater than the present value of the obliga-
tion, as adjusted for unrecognized past service cost),
the recognized asset is limited to the lower of unrecog-
nized past service cost and the present value of avail-
able refunds and reductions in future contributions to
the plan.
Changes resulting from periodic changes in actuarial
assumptions regarding general financial and business
conditions or demographics (i.e., changes in the dis-
count rate, annual salary increases, return on plan
assets, years of service, etc.) are immediately recog-
nized in the Group’s obligation and as a separate com-
ponent of equity in "Other reserves".
Mandatory general plans
and multi-employer plans
In most countries, the Group participates in mandato-
ry general plans, while in some countries, it contributes
to multi-employer plans. Depending on their terms and
conditions, these plans are treated as defined contri-
bution or defined benefit plans. For defined benefit
plans, the Group recognizes its share of the related
obligation, assets and costs.
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