Philips 2012 Annual Report Download - page 130

12 Group financial statements 12.10 - 12.10
130 Annual Report 2012
12.10 Significant accounting policies
The Consolidated financial statements in this section have been
prepared in accordance with International Financial Reporting
Standards (IFRS) as endorsed by the European Union (EU) and with the
statutory provisions of Part 9, Book 2 of the Dutch Civil Code. All
standards and interpretations issued by the International Accounting
Standards Board (IASB) and the IFRS Interpretations Committee
effective year-end 2012 have been endorsed by the EU, except that the
EU did not adopt some of the paragraphs of IAS 39 applicable to certain
hedge transactions. Philips has no hedge transactions to which these
paragraphs are applicable. Consequently, the accounting policies
applied by Philips also comply fully with IFRS as issued by the IASB.
These accounting policies have been applied by group entities.
As mentioned in the semi-annual financial statements and detailed at
‘IFRS accounting standards and voluntary accounting policy changes
adopted as from 2012’ of this section of the Annual report, the
Company applied three voluntary accounting policy changes
retrospectively, which resulted in certain reclassifications in the
Consolidated statements of income and sector information only and
have no impact on Earnings per share, the Consolidated balance sheet,
Consolidated statement of cash-flows and Consolidated statement of
changes in equity.
As mentioned in section 12.9 Segment information of this Annual
Report the previously reported segment GM&S (Group, Management
& Services) has been renamed to IG&S (Innovation, Group & Services).
This change did not affect the description and the financial information
reported under this segment.
The Consolidated financial statements have been prepared under the
historical cost convention, unless otherwise indicated.
The Consolidated financial statements are presented in euros, which is
the Company’s presentation currency.
On February 25, 2013, the Board of Management authorized the
Consolidated financial statements for issue. The Consolidated financial
statements as presented in this report are subject to the adoption by
the Annual General Meeting of Shareholders.
Use of estimates
The preparation of the Consolidated financial statements in conformity
with IFRS requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and the
reported amounts of assets, liabilities, income and expenses. These
estimates inherently contain certain degree of uncertainty. Actual
results may differ from these estimates under different assumptions or
conditions.
These estimates and assumptions affect the reported amounts of assets
and liabilities, the disclosure of contingent liabilities at the date of the
Consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting period. We evaluate these
estimates and judgments on an ongoing basis and base our estimates
on historical experience, current and expected future outcomes, third-
party evaluations and various other assumptions that we believe are
reasonable under the circumstances. The results of these estimates
form the basis for making judgments about the carrying values of assets
and liabilities as well as identifying and assessing the accounting
treatment with respect to commitments and contingencies. We revise
material estimates if changes occur in the circumstances or there is new
information or experience on which an estimate was or can be based.
Estimates significantly impact goodwill and other intangibles acquired,
tax on activities disposed, impairments, financial instruments, the
accounting for an arrangement containing a lease, revenue recognition
(multiple element arrangements), assets and liabilities from employee
benefit plans, other provisions and tax and other contingencies,
classification of assets and liabilities held for sale and the presentation
of items of profit and loss and cash-flows as continued or discontinued.
The fair values of acquired identifiable intangibles are based on an
assessment of future cash flows. Impairment analyses of goodwill and
indefinite-lived intangible assets are performed annually and whenever a
triggering event has occurred to determine whether the carrying value
exceeds the recoverable amount. These analyses generally are based
on estimates of future cash flows.
The fair value of financial instruments that are not traded in an active
market is determined by using valuation techniques. The Company uses
its judgment to select from a variety of common valuation methods
including the discounted cash flow method and option valuation models
and to make assumptions that are mainly based on market conditions
existing at each balance sheet date.
Actuarial assumptions are established to anticipate future events and
are used in calculating pension and other postretirement benefit
expense and liability. These factors include assumptions with respect
to interest rates, expected investment returns on plan assets, rates of
increase in health care costs, rates of future compensation increases,
turnover rates, and life expectancy.
Basis of consolidation
The Consolidated financial statements include the accounts of
Koninklijke Philips Electronics N.V. (‘the Company’) and all subsidiaries
that fall under its power to govern the financial and operating policies
of an entity so as to obtain benefits from its activities. The existence
and effect of potential voting rights that are currently exercisable are
considered when assessing whether the Company controls another
entity. Subsidiaries are fully consolidated from the date that control
commences until the date that control ceases. All intercompany
balances and transactions have been eliminated in the Consolidated
financial statements. Unrealized losses are eliminated in the same way
as unrealized gains, but only to the extent that there is no evidence of
impairment.
Business combinations
Business combinations are accounted for using the acquisition method.
Under the acquisition method, the identifiable assets acquired, liabilities
assumed and any non-controlling interest in the acquiree are
recognized as at the acquisition date, which is the date on which control
is transferred to the Company. Control is the power to govern the
financial and operating policies of an entity so as to obtain benefits from
its activities. In assessing control, the Company takes into consideration
potential voting rights that currently are exercisable.
For acquisitions on or after January 1, 2010, the Company measures
goodwill at the acquisition date as:
• the fair value of the consideration transferred; plus
• the recognized amount of any non-controlling interest in the
acquiree; plus
• if the business combination is achieved in stages, the fair value of the
existing equity interest in the acquiree; less
• the net recognized amount (generally fair value) of the identifiable
assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognized
immediately in profit or loss (hereafter referred to as the Statement of
income).
The consideration transferred does not include amounts related to the
settlement of pre-existing relationships. Such amounts are generally
recognized in the Statement of income.
Costs related to the acquisition, other than those associated with the
issue of debt or equity securities, that the Company incurs in
connection with a business combination are expensed as incurred.
Any contingent consideration payable is recognized at fair value at the
acquisition date and initially is presented as Long-term provisions.
When timing and amount of the consideration become more certain,
it is reclassified to Other current liabilities as accrued liabilities. If the
contingent consideration is classified as equity, it is not remeasured and
settlement is accounted for within equity. Otherwise, subsequent
changes to the fair value of the contingent consideration are recognized
in the Statement of income.
Acquisitions between January 1, 2004 and January 1, 2010
For acquisitions between January 1, 2004 and January 1, 2010, goodwill
represents the excess of the cost of the acquisition over the Company’s
interest in the recognized amount (generally fair value) of the
identifiable assets, liabilities and contingent liabilities of the acquiree.
Transaction costs, other than those associated with the issue of debt
or equity securities, that the Company incurred in connection with
business combinations were capitalized as part of the cost of the
acquisition. In particular, with respect to contingent consideration