Philips 2013 Annual Report Download - page 137

11 Group financial statements 11.8 - 11.9 1
Annual Report 2013 137
11.9 Notes
all amounts in millions of euros unless otherwise stated
Prior-period financial statements have been restated for the treatment of
Audio, Video, Multimedia and Accessories as discontinued operations
(see note 7, Discontinued operations and other assets classified as held for
sale) and the adoption of IAS 19R, which mainly relates to accounting for
pensions (see note 30, Post-employment benefits).
Notes to the Consolidated financial statements of the Philips Group
1Significant 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 eective year-end 2013 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.
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, 2014, 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, to be held on May 1, 2014.
Use of estimates
The preparation of the Consolidated financial statements in conformity
with IFRS requires management to make judgments, estimates and
assumptions that aect 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 dier from these estimates under dierent assumptions or conditions.
These estimates and assumptions aect 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 intangible assets are based on an assessment of
future cash flows. Impairment analyses of goodwill, intangible assets not
yet ready for use 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 post-employment benefit expenses and liabilities.
These factors include assumptions with respect to interest rates, rates of
increase in health care costs, rates of future compensation increases,
turnover rates and life expectancy.
Prior-year information
The presentation of certain prior-year information has been reclassified to
conform to the current year presentation, including the 2011 presentation
of adjustments to the results of prior year’s divestments reported as
discontinued operations as a consequence of the resolution of
uncertainties that arose from the relevant sales agreements. As a result, an
income tax benefit of EUR 30 million was retrospectively reclassified in the
2011 comparative figures from income tax expense of continuing
operations to income tax from discontinued operations.
Basis of consolidation
The Consolidated financial statements include the accounts of Koninklijke
Philips N.V. (‘the Company’) and all subsidiaries that the Company
controls, i.e. when it is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to aect those returns
through its power over the investee. The existence and eect of potential
voting rights 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
at the acquisition date, which is the date on which control is transferred to
the Company.
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 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.