APC 2011 Annual Report Download - page 164

162 2011 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC
CONSOLIDATED FINANCIAL STATEMENTS
5NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Development costs for new projects are capitalised if, and only if:
•the project is clearly identifi ed and the related costs are separately
identifi ed and reliably tracked;
•the project’s technical feasibility has been demonstrated and the
Group has the intention and fi nancial resources to complete the
project and to use or sell the resulting products;
•the Group has allocated the necessary technical, fi nancial and
other resources to complete the development;
•it is probable that the future economic benefi ts attributable to the
project will fl ow to the Group.
Development costs that do not meet these criteria are expensed in
the fi nancial year in which they are incurred.
Capitalised development projects are amortised over the lifespan
of the underlying technology, which generally ranges from three to
tenyears. The amortisation of such capitalised projects is included
in the cost of the related products and classifi ed into “Cost of sales”
when the products are sold.
Software implementation
External and internal costs relating to the implementation of
enterprise resource planning (ERP) applications are capitalised when
they relate to the programming, coding and testing phase. They are
amortised over the applications’ useful lives. In accordance with
paragraph98 of IAS38, the SAP bridge application currently being
rolled out within the Group is amortised using the unit method to
refl ect the pattern in which the asset’s future economic benefi ts are
expected to be consumed. Said units of production correspond to
the number of users of the rolled-out solution divided by the number
of target users at the end of the roll-out.
1.9 – Property, plant and equipment
Property, plant and equipment is primarily comprised of land,
buildings and production equipment and is carried at cost, less
accumulated depreciation and any accumulated impairment
losses, in accordance with the recommended treatment in
IAS16–Property, plant and equipment.
Each component of an item of property, plant and equipment with a
useful life that differs 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
Machinery and equipment: 3 to 10years
Other: 3 to 12years
The useful life of property, plant and equipment used in operating
activities, such as production lines, refl ects the related products’
estimated life cycles.
Useful lives of items of property, plant and equipment 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 expensed in the period or included in the production
cost of inventory or the cost of internally-generated intangible
assets. It is recognised in the statement of income under “Cost of
sales”, “Research and development costs” or “Selling, general and
administrative expenses”, as the case may be.
Items of property, plant and equipment are tested for impairment
whenever there is an indication they may have been impaired.
Impairment losses are charged to the statement of income under
“Other operating income and expenses”.
Leases
The assets used under leases are recognised in the balance sheet,
offset by a fi nancial debt, where the leases transfer substantially all
the risks and rewards of ownership to the Group.
Leases that do not transfer substantially all the risks and rewards of
ownership are classifi ed as operating leases. The related payments
are recognised as an expense on a straight-line basis over the lease
term.
Borrowing costs
In accordance with IAS 23 R – Borrowing costs (applied as of
January1, 2009), borrowing costs that are directly attributable to
the acquisition, construction or production of a qualifying asset are
capitalised as part of the cost of the asset when it is probable that
they will result in future economic benefi ts to the entity and the costs
can be measured reliably. Other borrowing costs are recognised
as an expense for the period. Prior to January1, 2009, borrowing
costs were systematically expensed when incurred.
1.10 – Impairment of assets
In accordance with IAS36 – Impairment of Assets – the Group
assesses the recoverable amount of its long-lived assets as follows:
•for all property, plant and equipment subject to depreciation and
intangible assets subject to amortisation, the Group carries out a
review at each balance sheet date to assess whether there is any
indication that they may be impaired. Indications of impairment
are identifi ed 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 minus
costs to sell and value in use;
•non-amortisable intangible assets and goodwill are tested for
impairment at least annually and whenever there is an indication
that the asset may be impaired.
Value in use is determined by discounting future cash fl ows that
will be generated by the tested assets, generally over a period of
not more than fi ve years. These future cash fl ows are based on
Group management’s economic assumptions and operating
forecasts. The discount rate corresponds to the Group’s weighted
average cost of capital (WACC) at the measurement date plus a
risk premium depending on the region in question. The WACC
stood at 8.1% at December 31, 2011, a slight decrease on the
8.4% at December31, 2010. This rate is based on (i)a long-term
interest rate of 3.7%, corresponding to the average interest rate for
10year OAT treasury bonds over the past few years, (ii)the average
premium applied to fi nancing obtained by the Group in the fourth
quarter of 2011, and (iii)the weighted country risk premium for the
Group’s businesses in the countries in question.