Ubisoft 2005 Annual Report Download - page 62

statements and the estimates presenting a considerable risk
of variation during the subsequent period are discussed in
the notes on the tests of depreciation of goodwill, other
intangible assets and tangible assets.
The accounting standards discussed below have been
consistently applied to all the periods presented in the
consolidated financial statements, as well as in preparing
the opening IFRS balance sheet on April 1, 2004 for the
purpose of the IFRS transition.
The accounting standards were applied uniformly by the
Group entities.
2.5.2.4 Principles of consolidation
Subsidiaries
A subsidiary is an entity controlled by Ubisoft
Entertainment SA. Control exists whenever the company
has the power to directly or indirectly manage the finan-
cial and operational policies of the entity in order to gain
the benefits of its activities. To assess control, the poten-
tial voting rights that are currently exercisable or conver-
tible are taken into account. The financial statements of
the subsidiaries are included in the consolidated financial
statements starting from the date on which control is
transferred to the Group up to the date at which it ceases.
Associates
Associates are entities in which Ubisoft Entertainment SA
exercises significant influence on the financial and opera-
tional policies but no control. The consolidated financial
statements include the group share in the total amount of
profits and losses recorded by the associates, using the
equity accounting method, starting from the date when
significant influence was exercised up to the date at which
it ended.
As of March 31, 2006, the group companies controlled are
fully consolidated; only Gameloft SA, where the percentage
held is 19.42%, is accounted for using the equity method.
Transactions eliminated in the consolidated
financial statements
The balances, losses and unrealized gains, revenue and
expenses resulting from transactions between group com-
panies are eliminated during the preparation of the conso-
lidated financial statements. The unrealized gains
resulting from transactions with associates and entities
under joint control are eliminated in proportion to the
group interests in the entity. Unrealized losses are elimi-
nated in the same way as unrealized gains, but only to the
extent that they are not representative of a loss in value.
Translation of foreign currency transactions
Transactions in foreign currency are measured by applying
the exchange rate prevailing at the date of the transaction.
At year-end, the monetary assets and liabilities denomina-
ted in foreign currency are translated into euros at the
exchange rate at closing. Any exchange rate differences
that result are recognized in the income statement.
The non-monetary assets and liabilities denominated in
foreign currency, which are measured at historical cost,
are translated by using the exchange rate at the transac-
tion date. The non-monetary assets and liabilities denomi-
nated in foreign currency, which are measured at market
value, are translated using the exchange rate prevailing at
the time the market value was determined.
Translation of foreign subsidiaries’ financial
statements into euros
The assets and liabilities of foreign subsidiaries, including
goodwill, are translated into euros by using the closing
exchange rate. The items in the income statement are trans-
lated into euros at a rate approximating the exchange rate
at the transaction date. Equity are kept at the historical rate.
The resulting exchange rate differences are booked to the
translation reserves, as a distinct component of equity.
Goodwill
All companies reorganizations are recorded using the
acquisition method. Goodwill result from the acquisition of
subsidiaries, associates and joint enterprises and corres-
pond to the difference between the acquisition cost and the
fair value of the assets, liabilities and contingent liabilities
identified at the date of acquisition.
Positive goodwill are not amortized but are subject to
annual impairment tests at the end of each accounting
period. The recoverable value of the goodwill is then esti-
mated either on the basis of fair value or on the basis of
value in use. The value in use is defined as the present
value related to the cash-flow generating units with which
the goodwill are associated. When the market value or the
value in use is less than the accounting value, a deprecia-
tion is recorded and is irreversible.
The cash-flow generating units used in the calculations of
the impairment tests correspond to the subsidiaries in a
single country, with the exception of goodwill related to
the acquisition of Red Storm Entertainment Inc. (US),
where the cash-flow generating unit corresponds to the
group’s consolidated accounts.
The discount rate used is the treasury bond rate adjusted to
exclude market risks for Ubisoft Entertainment and taxes.
Negative goodwill (which, according to IFRS 3, are defined
as “the excess of the cost over the acquirer’s interests in
the net fair value of the identifiable assets, liabilities and
contingent liabilities acquired”) are booked immediately in
the results.
Brands
Trademarks and patents are recorded at their fair value by
applying IFRS 3 concerning business combinations. They
are not amortized, but annual impairment tests are
conducted at the end of each accounting period. The reco-
verable value of the brand is then estimated either on the
basis of fair value or on the basis of value in use. The value
in use is defined as the present value relative to the cash-
flow generating units with which the trademark is associa-
ted. When the fair value or the value in use is less than the
accounting value, a depreciation is booked.
Other intangible assets
The other intangible assets that were acquired by the group
are recorded at their cost minus the total of amortization