APC 2006 Annual Report Download - page 141

139
5
29.2 - Adjustments arising
from the first-time adoption of IFRS
The opening IFRS balance sheet at January 1, 2004
was prepared using the following options and exemp-
tions allowed under IFRS 1- First Time Adoption of
IFRS:
Business combinations carried out prior to January
1, 2004 were not restated.
Cumulative actuarial gains and losses for (off-bal-
ance sheet) defined benefit plans were recognized by
adjusting opening retained earnings.
Cumulative translation adjustments were reset to
zero at January 1, 2004 by adjusting opening retained
earnings, without any impact on total equity.
IAS 32 and IAS 39 were applied prospectively from
January 1, 2005. As a result, the 2004 financial state-
ments were not restated for these standards.
The other options available under IFRS 1 were not
used.
Income statement presentation
The presentation of the income statement was
changed to comply with IAS 1 –
Presentation of Finan-
cial Statements.
The main change concerned 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 were reclassified, as
explained in note 29.3.1 below.
29.3 - Main adjustments
recorded in 2004
29.3.1 - Intangible assets
Intangible assets generated by development
activities
Development costs for new products and comprehen-
sive product upgrades may be capitalized under IAS 38.
Systems were set up to track and capitalize these
costs only in 2004. As a result, 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 consists
of maintenance or process engineering costs for exist-
ing products, which do not qualify for capitalization
under IAS 38. In the IFRS accounts, these costs con-
tinue to be charged directly to the income statement;
however, they are reclassified under "Cost of sales"
and included in the carrying amount of inventories
where appropriate. Only research costs continue to be
reported under "Research and development expens-
es", 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 (note 29.3.3).
The amount reported under "Research and develop-
ment expenses" corresponds solely to research costs.
Intangible assets previously
recognized in the balance sheet
All intangible assets carried in the opening French
GAAP balance sheet at January 1, 2004 complied
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" were reclassified under intangible
assets (1 million at January 1, 2004 and 2 million
at December 31, 2004) or eliminated (10 million at
January 1, 2004 and 12 million at December 31,
2004).
No changes were made to amortization periods.
Intangible assets
acquired in business 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 were also recognized in
the French GAAP accounts and adoption of IFRS 3 did
not therefore result in any adjustments to the 2004
accounts.
29.3.2 - Goodwill
As explained above, the Group decided not to restate
business combinations carried out prior to January 1,
2004.
Goodwill arising on business combinations carried out
in 2004 (and final adjustments to goodwill arising on
business combinations carried out in 2003) was 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 of 217
million on 2004 profit and 209 million on the balance
sheet at December 31, 2004, after taking into account
translation adjustments.
Goodwill was also adjusted by 176 million at Decem-
ber 31, 2004 to take into account deferred tax liabili-
ties recognized on purchased brands, in application of
IAS 12.
French GAAP (standard CRC 2002-10) comply with
IAS 36 - Impairment of Assets, and goodwill is tested
for impairment on the same basis in both the French
GAAP and the IFRS accounts.