APC 2007 Annual Report Download - page 112

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 mean-
ingful.
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 selling
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 ad-
ministrative expenses".
The cost of work in process, semi-finished and finished
products includes direct materials and labor costs, sub-
contracting costs, production overheads based on normal
capacity utilization rates and the portion of research and
development costs related to the production process (cor-
responding to the amortization of capitalized projects in
production and product and range maintenance costs).
1.13 - Trade 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 de-
termined 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 ac-
count will not be collected, the doubtful account and the
related allowance are written off to the income statement.
Accounts receivable in more than one year are discounted
in cases where the discounting adjustment is material.
1.14 - 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 real-
izable value.
1.15 - Deferred taxes
Deferred taxes, corresponding to temporary differences
between the tax basis and reporting basis of consolidated
assets and liabilities, are recorded using the liability
method. Deferred tax assets are recognized when it is
probable that they will be recovered at a reasonably de-
terminable date.
Future tax benefits arising from the utilization of tax loss
carryforwards (including amounts available for carryfor-
ward without time limit) are recognized only when they can
reasonably be expected to be realized.
Deferred tax assets and liabilities are not discounted. De-
ferred tax assets and liabilities that concern the same unit
and are expected to reverse in the same period are netted
off.
1.16 - 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 securities. Sub-
stantially all marketable securities represent short-term in-
struments 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 virtually no risk of impairment. The
Group treats them as cash equivalents.
1.17 - 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 recog-
nized in equity, net of tax.
1.18 - Pensions and other post-
employment benefit obligations
Depending on local practices and laws, the Group’s sub-
sidiaries participate in pension, termination benefit and
other long-term benefit plans. Benefits paid under these
plans depend on such factors as seniority, compensation
levels and payments into mandatory retirement programs.
Defined contribution plans
Payments made under defined contribution plans are
recorded in the income statement, in the year of payment
and are in full settlement of the Group’s liability.
Defined benefit plans
The present value of defined benefit obligations is deter-
mined using the projected unit credit method.
The amount recognized in the balance sheet corresponds
to the present value of the obligation, adjusted for unrec-
ognized 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 obligation, as ad-
justed for unrecognized past service cost), the recognized
asset is limited to the lower of unrecognized past service
cost and the present value of available refunds and reduc-
tions in future contributions to the plan.
Changes resulting from periodic adjustments to actuarial
assumptions regarding general financial and business con-
ditions or demographics (i.e., changes in the discount rate,
annual salary increases, return on plan assets, years of
service, etc.) are immediately recognized in the Group’s
obligation and as a separate component of equity in "Other
reserves".
Mandatory general plans and multi-employer
plans
In most countries, the Group participates in mandatory
general plans, while in some countries, it contributes to
multi-employer plans. Depending on their terms and con-
ditions, these plans are treated as defined contribution or
defined benefit plans. For defined benefit plans, the Group
recognizes its share of the related obligation, assets and
costs.
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