Philips 2014 Annual Report Download - page 119

Group nancial statements 12.9
Annual Report 2014 119
• Measurement of liabilities associated with
environmental obligations, is based on current legal
and constructive requirements. Liabilities and
expected insurance recoveries, if any, are recorded
separately. The carrying amount of environmental
liabilities is regularly reviewed and adjusted for new
facts and changes in law.
• The provision for restructuring relates to the
estimated costs of initiated reorganizations, the most
signicant of which have been approved by the
Board of Management, and which generally involve
the realignment of certain parts of the industrial and
commercial organization. When such reorganizations
require discontinuance and/or closure of lines of
activities, the anticipated costs of closure or
discontinuance are included in restructuring
provisions. A liability is recognized for those costs
only when the Company has a detailed formal plan
for the restructuring and has raised a valid
expectation with those aected that it will carry out
the restructuring by starting to implement that plan
or announcing its main features to those aected by
it. Before a provision is established, the Company
recognizes any impairment loss on the assets
associated with the restructuring.
Goodwill
Measurement of goodwill at initial recognition is
described under Basis of consolidation below. Goodwill
is subsequently measured at cost less accumulated
impairment losses. In respect of investments in
associates, the carrying amount of goodwill is included
in the carrying amount of investment, and an
impairment loss on such investment is allocated to the
investment as a whole.
Intangible assets other than goodwill
Acquired nite-lived intangible assets are amortized
using the straight-line method over their estimated
useful life. The useful lives are evaluated annually.
Patents and trademarks with a nite useful life acquired
from third parties either separately or as part of the
business combination are capitalized at cost and
amortized over their remaining useful lives. Intangible
assets acquired as part of a business combination are
capitalized at their acquisition-date fair value.
The Company expenses all research costs as incurred.
Expenditure on development activities, whereby
research ndings are applied to a plan or design for the
production of new or substantially improved products
and processes, is capitalized as an intangible asset if
the product or process is technically and commercially
feasible and the Company has sucient resources and
the intention to complete development.
The development expenditure capitalized comprises of all
directly attributable costs (including the cost of materials and
direct labor). Other development expenditures and
expenditures on research activities are recognized in the
Statement of income. Capitalized development expenditure
is stated at cost less accumulated amortization and
impairment losses. Amortization of capitalized development
expenditure is charged to the Statement of income on a
straight-line basis over the estimated useful lives of the
intangible assets.
Discontinued operations and non-current assets held
for sale
Non-current assets (disposal groups comprising assets
and liabilities) that are expected to be recovered
primarily through sale rather than through continuing
use are classied as held for sale.
A discontinued operation is a component of an entity that
either has been disposed of, or that is classied as held for
sale, and (a) represents a separate major line of business
or geographical area of operations; and (b) is a part of a
single coordinated plan to dispose of a separate major line
of business or geographical area of operations; or (c) is a
subsidiary acquired exclusively with a view to sell. A
component that previously was held for use will have one
or more cash-generating units.
Non-current assets held for sale and discontinued
operations are carried at the lower of carrying amount
or fair value less cost to sell. Any gain or loss from
disposal, together with the results of these operations
until the date of disposal, is reported separately as
discontinued operations. The nancial information of
discontinued operations is excluded from the
respective captions in the Consolidated nancial
statements and related notes for all periods presented.
Comparatives in the balance sheet are not re-
presented when a non-current asset or disposal group
is classied as held for sale. Comparatives are restated
for presentation of discontinued operations in the
Statement of cash ow and Statement of income.
Adjustments in the current period to amounts previously
presented in discontinued operations that are directly
related to the disposal of a discontinued operation in a
prior period are classied separately in discontinued
operations. Circumstances to which these adjustments
may relate include resolution of uncertainties that arise
from the terms of the disposal transaction, such as the
resolution of a purchase price adjustments and
indemnications, resolution of uncertainties that arise
from and are directly related to the operations of the
component before its disposal, such as environmental and
product warranty obligations retained by the Company, or
the settlement of employee benet plan obligations
provided that the settlement is directly related to the
disposal transaction.
Impairment
Impairment of goodwill, intangible assets not yet
ready for use and indenite-lived intangible assets
Goodwill, intangible assets not yet ready for use and
indenite-lived intangible assets are not amortized but
tested for impairment annually and whenever impairment
indicators require. In most cases the Company identied