APC 2012 Annual Report Download - page 176

2012 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC174
CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER31, 2012
5NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
•non-amortizable 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. These future cash fl ows
are based on Group management’s economic assumptions and
operating forecasts presented in forecasts over a period generally
not exceeding 5 years, then extrapolated based on a perpetuity
growth rate. 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 7.7% at December 31, 2012, a slight decrease on the
8.1% at December31, 2011. This rate is based on (i)a long-term
interest rate of 3.4%, 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2012, and (iii)the weighted country risk premium for the
Group’s businesses in the countries in question.
The perpetuity growth rate was 2%, unchanged on the previous
fi nancial year.
Impairment tests are performed at the level of the cash-generating
unit (CGU) to which the asset belongs. A cash-generating unit is
the smallest group of assets that generates cash infl ows that
are largely independent of the cash fl ows from other assets or
groups of assets. The cash-generating units in2012, as in2011,
are Power, Infrastructure, Industry, IT, Buildings and CST CGUs.
Net assets were reallocated to the CGUs at the lowest possible
level on the basis of the CGU activities to which they belong;
the assets belonging to several activities were allocated to each
CGU (Power, Infrastructure and Industry mainly) pro-rata to their
revenue in that CGU.
The WACC used to determine the value in use of each CGU was
7.8% for CST, 8.6% for Industry, 8.5% for Power and IT, 8.0% for
Buildings and 8.7% for Infrastructure.
Goodwill is allocated when initially recognized. The CGU allocation
is done on the same basis as used by Group management to
monitor operations and assess synergies deriving from acquisitions.
Where the recoverable amount of an asset or CGU is lower than
its book value, an impairment loss is recognized for the excess of
the book value over the recoverable value. The recoverable value
is defi ned as the highest value between the value in use and the
realizable value net of costs. Where the tested CGU comprises
goodwill, any impairment losses are fi rstly deducted there from.
1.12 – Non-current financial assets
Investments in non-consolidated companies are classifi ed as
available-for-sale fi nancial assets. They are initially recorded at their
cost of acquisition and subsequently measured at fair value, when
fair value can be reliably determined.
The fair value of investments listed in an active market may be
determined reliably and corresponds to the listed price at balance
sheet date (Level 1 from the fair value hierarchy as per IFRS7).
In cases where fair value cannot be reliably determined on
observable markets, the investments are measured at cost net
of any accumulated impairment losses. The recoverable amount
is determined either by assessing the Group’ share in the entity’s
net assets or the expected future cash-fl ows representative of
management expectation in this investment. This rule is applied in
particular to unlisted shares.
Changes in fair value are accumulated as other comprehensive
income in the comprehensive income statement and, in balance
sheet, in equity under “Other reserves” up to the date of sale, at
which time they are recognized in the income statement. Unrealized
losses on assets that are considered to be permanently impaired
are recorded at the statement of income under fi nancial loss.
Loans, recorded under “Other non-current fi nancial assets”, are
carried at amortized cost and tested for impairment where there
is an indication that they may have been impaired. Non-current
fi nancial receivables are discounted when the impact of discounting
is considered signifi cant.
1.13 – Inventories and work in process
Inventories and work in progress are measured at the lower of their
initial recognition cost (acquisition cost or production cost generally
determined by the weighted average price method) or of their
estimated net realizable value.
Net realizable value corresponds to the estimated selling price net
of remaining expenses to complete and/or sell the products.
Inventory impairment losses are recognized in “Cost of sales”.
The cost of work in progress, semi-fi nished and fi nished products,
includes the cost of materials and direct labor, subcontracting
costs, all production overheads based on normal manufacturing
capacity and the portion of research and development costs that
are directly related to the manufacturing process (corresponding to
the amortization of capitalized projects in production and product
and range of products maintenance costs).
1.14 – Trade and other operating receivables
Depreciations for doubtful accounts are recorded when it is
probable that receivables will not be collected and the amount of the
loss can be reasonably estimated. Doubtful accounts are identifi ed
and the related depreciations determined based on historical loss
experience, the aging of the receivables and a detailed assessment
of the individual receivables along with the related credit risks.
Once it is known with certainty that a doubtful account will not be
collected, the doubtful account and its related depreciation are
written off through the Income S tatement .
Accounts receivable are discounted in cases where they are due in
over one year and the impact of adjustment is signifi cant.