Philips 2013 Annual Report Download - page 138

11 Group financial statements 11.9 - 11.9
138 Annual Report 2013
Acquisitions of and adjustments to non-controlling interests
Acquisitions of non-controlling interests are accounted for as transactions
with owners in their capacity as owners and therefore no goodwill is
recognized. Adjustments to non-controlling interests arising from
transactions that do not involve the loss of control are based on a
proportionate amount of the net assets of the subsidiary.
For changes to non-controlling interest without the loss of control, the
dierence between such change and any consideration paid or received is
recognized directly in equity.
Loss of control
Upon the loss of control, the Company derecognizes the assets and
liabilities of the subsidiary, any non-controlling interests and the other
components of equity related to the subsidiary. Any surplus or deficit
arising on the loss of control is recognized in the Statement of income. If
the Company retains any interest in the previous subsidiary, then such
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 group’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 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 the 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
dierences of equity stake resulting from gaining control over the investee
previously recorded as associate are recorded under Results related to
investments in associates.
Investments in associates include loans from the Company to these
investees.
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 is 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
The financial statements of all group entities are measured using the
currency of the primary economic environment in which the entity
operates (functional currency). The euro (EUR) is the functional and
presentation currency of the Company. 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 dierences arising from translation are recognized in
profit or loss, except for available-for-sale equity investments (except on
impairment in which case foreign currency dierences that have been
recognized in Other comprehensive income are reclassified to profit and
loss), which are recognized in Other comprehensive income.
All exchange dierence items are presented as part of Cost of sales, with
the exception of tax items and financial income and expense, which are
recognized in the same line item as they relate in the Statement of income.
Non-monetary assets and liabilities denominated in foreign currencies
that are measured at fair value are retranslated to the functional currency
using 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 dierences arising on translation of foreign operations
into the Group’s presentation currency are recognized in Other
comprehensive income, and presented as part of Currency translation
dierences in equity. However, if the operation is a non-wholly owned
subsidiary, then the relevant proportionate share of the translation
dierence 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 reclassified 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 reclassified 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 the trade date. Dividend and interest income are recognized when
earned. Gains or losses, if any, are recorded in Financial income and
expense.
Non-derivative financial instruments comprise cash and cash equivalents,
receivables, other non-current financial assets and debt and other
financial liabilities that are not designated as hedges.
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 value adjustments 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 o 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.