Consolidated financial statements
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LISI 2014FINANCIALREPORT
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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, 2.2.15
and2.2.16.
2.2.6.2Financialderivatives
TheGroup uses derivative financial instruments to hedge its exposure
to foreign exchange and interest rate risks arising from operational,
financing and investment activities. In accordance with its cash
management policy, LISI S.A. neither holds nor issues derivatives for
tradingpurposes.
However, derivatives that donotmeet thehedge criteria are valued and
recorded at fair value by earnings. The profit or loss arising from the
re-evaluationatfairvalue is immediatelypostedtothe incomestatement.
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
profitsor lossesare takenoutofshareholders’ equityand included in the
incomestatementof theperiod(s)duringwhich thecovered transaction
affectstheprofitor loss.
2.2.7Intangibleassets
2.2.7.1Goodwill
In linewith IFRS3,businesscombinationsare recognized in theaccounts
using the acquisition method. This method requires that at the first
consolidation of any entity over which theGrouphas direct or indirect
control, the assets and liabilities acquired (and any potential liabilities
assumed)shouldberecognizedattheiracquisition-datefairvalue.Atthis
point,goodwill isvaluedatcost,whichequatestothedifferencebetween
thecostofthebusinesscombinationandLISI’sstakeinthefairvalueofthe
assetsand identifiable liabilities.
ForacquisitionspriortoJanuary1,2004,goodwillremainsatitspresumed
cost, i.e. thenet amount recognized in theaccountsunder theprevious
accounting framework,minusdepreciation.
For acquisitions after this date, goodwill is valued at cost, minus the
cumulative loss invalue. It isallocatedtocash-generatingunitsorgroups
of cash-generatingunitsand isnotamortized; instead, it issubject toan
impairment test at least oncea year following themethoddescribed in
paragraph2.2.8.5.
Ifthegoodwillisnegative,itisrecognizeddirectlyasaprofitintheincome
statement.
2.2.7.2Researchanddevelopment
Research costs incurred in order to develop scientific knowledge and
understanding,orto learnnewtechniques,arerecognizedasanexpense
whentheyare incurred.
Under the IFRS framework, development costs (i.e., costs incurred by
applying the results of research to a plan ormodel in order todevelop
newor substantially improvedproducts andprocesses) are recordedas
fixedassets if theGroupcandemonstrate that futureeconomicbenefits
areprobable.TheLISIGroup’sdevelopmentcostsprimarily relatemainly
toproductswhicharebeingdeveloped throughveryclosecollaboration
withclients, ratherthanto improvements inprocesses.
Due to the nature of the LISI Group’s research anddevelopment costs,
most such costsdonotmeet the criteria for capitalizationas intangible
fixedassets; theyare therefore recordedasexpenses. TheGroupcarries
out regular assessmentsofmajor projects inorder to identifyany costs
whichcouldbecapitalized.
2.2.7.3Other intangibleassets
Concessions, trademarks and software programs are recognized at
historic cost and are subject to a depreciation plan. Intangible fixed
assets acquired throughabusiness combinationare recognizedat their
acquisition-date fairvalue. Intangible fixedassetswith finiteuseful lives
aresubject todepreciationover thisperiod,while intangible fixedassets
with indefinite useful lives are subject to an impairment test for every
newbalancesheet.
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
recognizedasanexpensewhen incurred.
Depreciation is recognizedasanexpenseusing thestraight-linemethod
over the estimateduseful life of the intangible fixed assets, unless the
useful lifecannotbeestimated.
Standardestimateduseful livesareas follows:
Trademarks: 10-20years
Softwareprograms: 1-5years
2.2.8Tangibleassets
2.2.8.1Assetsownedby theLISIGroup
Tangible fixedassetsare recordedatdiminished costwithaccumulated
depreciations and impairments. The cost of an asset produced by the
Groupfor itself includesthecostsofrawmaterials,directmanpower,and
anestimate, ifapplicable,ofcostsrelatedtotheremovalanddismantling
of theassetand the repairof thesiteatwhich it is located,alongwithan
appropriateshareofthegeneralproductioncosts.
When the components of tangible fixed assets have different useful
lives, they are recorded as separate tangible fixed assets, as per the
componentsmethod.
2.2.8.2Assets funded through finance leases
Leaseswhich transfer virtually all the risks andbenefits relating to the
ownershipof anasset to theGroupare classedas finance leases.Assets
funded through finance leases are recognized in the assets side of
the balance sheet at the fair value of the goods leased, or the present
value of theminimum lease payments if this is lower. These assets are
depreciatedover the sameperiodas goods of the same typewhichare
ownedoutright. Thecorrespondingdebt isenteredon the liabilitiesside
ofthebalancesheet.
