Philips 2011 Annual Report Download - page 130

12 Group financial statements 12.10 - 12.10
130 Annual Report 2011
interest is measured at fair value at the date the control is lost.
Subsequently it is accounted for as an equity-accounted investee or as
an available-for-sale financial asset depending on the level of influence
retained.
Investments in associates (equity-accounted investees)
Associates are all entities over which the Company has significant
influence, but not control. Significant influence is presumed with a
shareholding of between 20% and 50% of the voting rights. Investments
in associates are accounted for using the equity method of accounting
and are initially recognized at cost. The Company’s investment in
associates includes goodwill identified on acquisition, net of any
accumulated impairment loss.
The Company’s share of the net income of these companies is included
in Results relating to investments in associates in the Statement of
income, after adjustments to align the accounting policies with those of
the Company, from the date that significant influence commences until
the date that significant influence ceases. When the Company’s share
of losses exceeds its interest in an associate, the carrying amount of
that interest (including any long-term loans) is reduced to zero and
recognition of further losses is discontinued except to the extent that
the Company has incurred legal or constructive obligations or made
payments on behalf of an associate. Unrealized gains on transactions
between the Company and its associates are eliminated to the extent
of the Company’s interest in the associates. Unrealized losses are also
eliminated unless the transaction provides evidence of an impairment
of the asset transferred. Remeasurement differences of equity stake
resulting from gaining control over the investee previously recorded as
associate are recorded under Results relating to investments in
associates.
Investments in associates include loans from the Company to these
investees, which in substance form part of the investment.
Accounting for capital transactions of a consolidated
subsidiary or an associate
The Company recognizes dilution gains or losses arising from the sale
or issuance of stock by a consolidated subsidiary or an associate in the
Statement of income, unless the Company or the subsidiary either has
reacquired or plans to reacquire such shares. In such instances, the
result of the transaction will be recorded directly in equity.
Dilution gains and losses arising in investments in associates are
recognized in the Consolidated statements of income under “Results
relating to investments in associates”.
Foreign currencies
Foreign currency transactions
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions or valuation where items are remeasured. Foreign
exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies are
recognized in the Statement of income, except when deferred in other
comprehensive income as qualifying cash flow hedges and qualifying net
investment hedges.
Foreign currency differences arising on retranslation are recognized in
profit or loss, except for available-for-sale equity investments (except
on impairment in which case foreign currency differences that have
been recognized in other comprehensive income are reclassified to
profit and loss), which are recognized in other comprehensive income.
All exchange difference items are presented in the same line item as
they relate in the Statement of income. However, the results ensuing
from fluctuations in foreign currency exchange rates with respect to
accounts receivables and accounts payables are credited or debited to
financial income and expense.
Non-monetary assets and liabilities denominated in foreign currencies
that are measured at fair value are retranslated to the functional
currency of at the exchange rate at the date the fair value was
determined. Non-monetary items in a foreign currency that are
measured based on historical cost are translated using the exchange
rate at the date of transaction.
Foreign operations
The assets and liabilities of foreign operations, including goodwill and
fair value adjustments arising on acquisition, are translated to euro at
exchange rates at the reporting date. The income and expenses of
foreign operations, are translated to euro at exchange rates at the dates
of the transactions.
Foreign currency differences arising on translation of foreign operations
into the group’s presentation currency are recognized in other
comprehensive income, and presented in the foreign currency
translation reserve (translation reserve) in equity. However, if the
operation is a non-wholly owned subsidiary, then the relevant
proportionate share of the translation difference is allocated to the
non-controlling interests. When a foreign operation is disposed of such
that control, significant influence or joint control is lost, the cumulative
amount in the translation reserve related to the foreign operation is
released to the Statement of income as part of the gain or loss on
disposal. When the Company disposes of only part of its interest in a
subsidiary that includes a foreign operation while retaining control, the
relevant proportion of the cumulative amount is reattributed to non-
controlling interests. When the Company disposes of only part of its
investment in an associate or joint venture that includes a foreign
operation while retaining significant influence or joint control, the
relevant proportion of the cumulative amount is released to the
Statement of income.
Financial instruments
Non-derivative financial instruments
Non-derivative financial instruments are recognized initially at fair value
when the Company becomes a party to the contractual provisions of
the instrument.
Regular way purchases and sales of financial instruments are accounted
for at trade date. Dividend and interest income are recognized when
earned. Gains or losses, if any, are recorded in financial income and
expenses.
Non-derivative financial instruments comprise cash and cash
equivalents, receivables, other non-current financial assets and debt and
other financial liabilities.
Cash and cash equivalents
Cash and cash equivalents include all cash balances and short-term
highly liquid investments with an original maturity of three months or
less that are readily convertible into known amounts of cash.
Receivables
Receivables are carried at the lower of amortized cost or the present
value of estimated future cash flows, taking into account discounts given
or agreed. The present value of estimated future cash flows is
determined through the use of allowances for uncollectible amounts.
As soon as individual trade accounts receivable can no longer be
collected in the normal way and are expected to result in a loss, they
are designated as doubtful trade accounts receivable and valued at the
expected collectible amounts. They are written off when they are
deemed to be uncollectible because of bankruptcy or other forms of
receivership of the debtors. The allowance for the risk of non-
collection of trade accounts receivable takes into account credit-risk
concentration, collective debt risk based on average historical losses,
and specific circumstances such as serious adverse economic conditions
in a specific country or region.
In the event of sale of receivables and factoring, the Company
derecognizes receivables when the Company has given up control or
continuing involvement, which is deemed to have occurred when:
• The Company has transferred its rights to receive cash flows from
the receivables or has assumed an obligation to pay the received cash
flows in full without any material delay to a third party under a ‘pass-
through’ arrangement; and
• either (a) the Company has transferred substantially all of the risks
and rewards of the ownership of the receivables, or (b) the Company
has neither transferred nor retained substantially all of the risks and
rewards, but has transferred control of the assets.
However, in case the Company neither transfers nor retains
substantially all the risks and rewards of ownership of the receivables
nor transfers control of the receivables, the receivable is recognized to
the extent of the Company’s continuing involvement in the assets. In