Philips 2015 Annual Report Download - page 115

Group nancial statements 12.9
Annual Report 2015 115
Settlements which are agreed for amounts in excess
of existing provisions are reected as increases of
Other liabilities.
Goodwill
The 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 a
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.
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 re-
presented 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 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 and intangible assets not yet
ready for use
Goodwill and intangible assets not yet ready for use are
not amortized but tested for impairment annually and
whenever impairment indicators require. In most cases
the Company identied its cash generating units for
goodwill at one level below that of an operating
segment. Cash ows at this level are substantially
independent from other cash ows and this is the
lowest level at which goodwill is monitored by the
Executive Committee. The Company performed and
completed annual impairment tests in the same quarter
of all years presented in the Statements of income. An
impairment loss is recognized in the Statement of
income whenever and to the extent that the carrying
amount of a cash-generating unit exceeds the unit’s
recoverable amount, which is the greater of its value in
use and fair value less cost to sell. Value in use is
measured as the present value of future cash ows
expected to be generated by the asset.
Impairment of non-nancial assets other than
goodwill, intangible assets not yet ready for use,
inventories and deferred tax assets
Non-nancial assets other than goodwill, intangible
assets not yet ready for use, inventories and deferred
tax assets are reviewed for impairment whenever
events or changes in circumstances indicate that the