LISI 2012 FINANCIAL REPORT
36
3
Consolidated financial statements
conversions appear in the conversion reserve, as a distinct
element of shareholders’ equity.
2.2.6 Financial instruments
2.2.6.1 NON-DERIVATIVE FINANCIAL INSTRUMENTS
Non-derivative financial instruments include investments
in equity instruments and debt securities, trade and other
receivables, cash and cash equivalents, loans and debts, and
trade and other payables. Non-derivative financial instruments
are recognized in the accounts as indicated in the specific notes
below: 2.2.8.6, 2.2.10, 2.2.11, 2.2.12, 2.2.16 and 2.2.17.
2.2.6.2 FINANCIAL DERIVATIVES
The Group makes very seldom use of derivatives to hedge its
exposure to currency risks, and more occasionally, interest rate
and raw material price fluctuation risks that result from its
operating, financial and investment activities. In accordance
with its cash management policy, LISI S.A. neither holds nor
issues derivatives for trading purposes.
However, derivatives that do not meet the hedge criteria are
valued and recorded at fair value by earnings. The profit or
loss arising from the re-evaluation at fair value is immediately
posted to the income statement.
When a derivative is designated as a hedge for cash flow
variations of a recognized asset or liability, or of a highly
probable, expected transaction, the effective share of change in
fair value of the derivative is recognized directly in shareholders’
equity. Accumulated, associated profits or losses are taken out
of shareholders’ equity and included in the income statement
of the period(s) during which the covered transaction affects
the profit or loss.
2.2.7 Intangible assets
2.2.7.1 GOODWILL
In line with IFRS 3, business combinations are recognized in the
accounts using the acquisition method. This method requires
that at the first consolidation of any entity over which the
Group has direct or indirect control, the assets and liabilities
acquired (and any potential liabilities assumed) should be
recognized at their acquisition-date fair value. At this point,
goodwill is valued at cost, which equates to the difference
between the cost of the business combination and LISI’s stake
in the fair value of the assets and identifiable liabilities.
For acquisitions prior to January 1, 2004, goodwill remains at its
presumed cost, i.e. the net amount recognized in the accounts
under the previous accounting framework, less depreciation.
For acquisitions after this date, goodwill is valued at cost, minus
the cumulative loss in value. It is allocated to cash-generating
units or groups of cash-generating units and is not amortized;
instead, it is subject to an impairment test at least once a year
following the method described in paragraph 2.2.8.5.
If the goodwill is negative, it is recognized directly as a profit in
the income statement.
2.2.7.2 RESEARCH AND DEVELOPMENT
Research costs incurred in order to develop scientific knowledge
and understanding, or to learn new techniques, are recognized
as an expense when they are incurred.
Under the IFRS framework, development costs (i.e., costs
incurred by applying the results of research to a plan or model
in order to develop new or substantially improved products
and processes) are recorded as fixed assets if the Group can
demonstrate that future economic benefits are probable.
The LISI Group’s development costs primarily relate mainly
to products which are being developed through very close
collaboration with clients, rather than to improvements in
processes.
Due to the nature of the LISI Group’s research and development
costs, most such costs do notmeet the criteria for capitalization
as intangible fixed assets; they are therefore recorded as
expenses. The Group carries out regular assessments of
major projects in order to identify any costs which could be
capitalized.
2.2.7.3 OTHER INTANGIBLE ASSETS
Concessions, trademarks and software programs are
recognized at historic cost and are subject to a depreciation
plan. Intangible fixed assets acquired through a business
combination are recognized at their acquisition-date fair value.
Intangible fixed assets with finite useful lives are subject to
depreciation over this period, while intangible fixed assets with
indefinite useful lives are subject to an impairment test for
every new balance sheet.
Subsequent expenditure relating to an intangible fixed asset
is only capitalized if it increases the future economic benefits
that are attributable to the specific asset in question. Other
expenditure is recognized as an expense when incurred.
Depreciation is recognized as an expense using the straight-line
method over the estimated useful life of the intangible fixed
assets, unless the useful life cannot be estimated.
Standard estimated useful lives are as follows:
Trademarks: 10 - 20 years
Software programs: 1 - 5 years
