Philips 2004 Annual Report Download - page 171
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Fair value of financial assets and liabilities
The estimated fair value of financial instruments has been determined by the Company using
available market information and appropriate valuation methods. The estimates presented are
not necessarily indicative of the amounts that the Company could realize in a current market
exchange or the value that will ultimately be realized by the Company upon maturity or
disposal. Additionally, because of the variety of valuation techniques permitted under SFAS No.
107, ‘Disclosures about Fair Value of Financial Instruments’, comparisons of fair values between
entities may not be meaningful. The use of different market assumptions and/or estimation
methods may have a material effect on the estimated fair value amounts.
December 31, 2003 December 31, 2004
carrying estimated carrying estimated
amount fair value amount fair value
Assets:
Cash and cash equivalents 3,072 3,072 4,349 4,349
Accounts receivable – current 4,628 4,628 4,528 4,528
Other financial assets 1,213 1,213 876 876
Accounts receivable – non-current 218 194 227 224
Derivative instruments – assets 411 411 523 523
Liabilities:
Accounts payable (3,205) (3,205) (3,499) (3,499)
Debt (5,876) (6,181) (4,513) (4,810)
Derivative instruments – liabilities (156) (156) (149) (149)
The following methods and assumptions were used to estimate the fair value of financial
instruments:
Cash, accounts receivable – current and accounts payable
The carrying amounts approximate fair value because of the short maturity of these
instruments.
Cash equivalents
The fair value is based on the estimated market value.
Other financial assets
For other financial assets, fair value is based upon the estimated market prices.
Accounts receivable – non-current
The fair value is estimated on the basis of discounted cash flow analyses.
Debt
The fair value is estimated on the basis of the quoted market prices for certain issues, or on the
basis of discounted cash flow analyses based upon Philips’ incremental borrowing rates for
similar types of borrowing arrangements with comparable terms and maturities. The difference
between the carrying amount and fair value of debt is partly caused by the carrying amount of
accrued interest that is included in the balance sheet under accounts payable. At December 31,
2004 the accrued interest of bonds, which is the main part of the accrual, was EUR 121 million
(2003: EUR 151 million).
170 Philips Annual Report 2004
Financial statements of the Philips Group