APC 2011 Annual Report Download - page 163

1612011 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC
CONSOLIDATED FINANCIAL STATEMENTS
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Companies over which the Group has signifi cant infl uence
(“associates”) are accounted for by the equity consolidation
method. Signifi cant infl uence is presumed to exist when more than
20% of voting rights are held by the Group.
Companies acquired or sold during the year are included in or
removed from the consolidated fi nancial statements as of the date
when effective control is acquired or relinquished.
Intra-group balances and transactions are eliminated.
The list of consolidated subsidiaries and associates can be found
in note32.
The reporting date for all companies included in the scope of
consolidation is December 31, with the exception of certain
associates accounted for by the equity method. For the latter
however, fi nancial statements up to September30 of the fi nancial
year have been used (maximum difference of three months in line
with the standards).
1.5 – Business combinations
Business combinations are accounted for using the acquisition
method, in accordance with IFRS 3 - Business Combinations.
In accordance with the option provided by IFRS 1 – First-Time
Adoption of IFRS – business combinations recorded before
January1, 2004 have not been restated. Material acquisition costs
are presented under “Other operating income and expenses” in the
statement of income.
All acquired assets, liabilities and contingent liabilities of the acquiree
are recognised at their fair value, following a measurement period
that can last for up to 12months from the date of acquisition.
The excess of the cost of acquisition over the Group’s share in
the fair value of assets and liabilities at the date of acquisition is
recognised in goodwill. Where the cost of acquisition is lower than
the fair value of the identifi ed assets and liabilities acquired, the
negative goodwill is immediately recognised in the statement of
income.
Goodwill is not amortised, but tested for impairment at least
annually and whenever there is an indication that it may be impaired
(see note1.10 below). Any impairment losses are recognised under
“Amortisation and impairment of purchase accounting intangibles”.
1.6 – Translation of the financial statements
offoreign subsidiaries
The consolidated fi nancial statements are prepared ineuros.
The fi nancial statements of subsidiaries that use another functional
currency are translated into euros as follows:
•assets and liabilities are translated at the offi cial closing rates;
•income statement and cash fl ow items are translated at
weighted- average annual exchange rates.
Gains or losses on translation are recorded in consolidated equity
under “Cumulative translation adjustments”. In accordance with
IFRS 1 – First Time Adoption of IFRS – cumulative translation
adjustments were reset to zero at January1, 2004 by adjusting
opening retained earnings, without any impact on total equity.
1.7 – Foreign currency transactions
Foreign currency transactions are recorded using the offi cial
exchange rate in effect at the date the transaction is recorded or the
hedging rate. At the balance sheet date, foreign currency payables
and receivables are translated into the functional currency at the
closing rates or the hedging rate. Gains or losses on translation
of foreign currency transactions are recorded under “Net fi nancial
income/(loss)”. Foreign currency hedging is described below, in
note1.22.
1.8 – Intangible assets
Intangible assets acquired separately or as part of a
business combination
Intangible assets acquired separately are initially recognised in the
balance sheet at historical cost. They are subsequently measured
using the cost model, in accordance with IAS38 – Intangible Assets.
Intangible assets (mainly trademarks and customer lists) acquired
as part of business combinations are recognised in the balance
sheet at fair value, appraised externally for the most signifi cant
assets and internally for the rest. The valuations are performed
using generally accepted methods, based on future infl ows. The
assets are regularly tested for impairment.
Intangible assets are amortised on a straight-line basis over their
useful life or, alternatively, over the period of legal protection.
Amortised intangible assets are tested for impairment when there is
any indication that their recoverable amount may be less than their
carrying amount.
Amortisation and impairment losses on such intangible assets
are presented on a separate statement of income line item,
“Amortisation and impairment of purchase accounting intangibles”.
Trademarks
Trademarks acquired as part of a business combination are not
amortised when they are considered to have an indefi nite life.
The criteria used to determine whether or not such trademarks
have indefi nite lives and, as the case may be, their lifespan, are as
follows:
•brand awareness;
•outlook for the brand in light of the Group’s strategy for integrating
the trademark into its existing portfolio.
Non-amortised trademarks are tested for impairment at least
annually and whenever there is an indication they may be impaired.
When necessary, an impairment loss is recorded.
Internally-generated intangible assets
Research and development costs
Research costs are expensed in the statement of income when
incurred.
Systems were set up to track and capitalise development costs
in 2004. As a result, only development costs for new products
launched since 2004 are capitalised in the IFRS accounts.