Annual Report 2008 - Securitas

Items affecting comparability
This item includes events and transactions with significant effects, which
are relevant for understanding the financial performance when comparing
income for the current period with previous periods. They include:
• capital gains and losses arising from the disposal of material cash generating
units.
• Material impairment losses and bad debt losses.
• Material litigations and insurance claims.
• Other material income and expense items of a non-recurring nature.
Provisions, impairment losses, bad debt losses or other material non-recurring
items that are classified as items affecting comparability in a period are
accounted for consistently in future periods by treating any reversal of provisions,
impairment losses, bad debt losses or other non-recurring items as
items affecting comparability.
For further information regarding the items included in items affecting
comparability, refer to Note 4 and to Note 11.
Other intangible assets (IAS 36 and IAS 38)
Other intangible assets are recognized if it is probable that the expected
future economic benefits that are attributable to the asset will flow to the
Group and that the cost of the asset can be measured reliably. Other intangible
assets have a definite useful life. These assets are recognized at cost
and subsequently carried at cost less accumulated amortization and any
accumulated impairment losses.
Linear depreciation is used for all asset classes, as follows:
Software licenses 12.5–33.3 percent
Other intangible assets 20–33.3 percent
Rental rights and similar rights are amortized over the same period as the
underlying contractual period.
Tangible non-current assets (IAS 16 and IAS 36)
Tangible non-current assets are recognized at cost and subsequently carried
at cost less accumulated depreciation according to plan and any accumulated
impairment losses. Depreciation according to plan is based on historical
cost and the useful life of the asset.
Linear depreciation is used for all asset classes, as follows:
Machinery and equipment 10–25 percent
Buildings and land improvements 1.5–4 percent
Land 0 percent
Impairment (IAS 36)
Assets that have an indefinite useful life are not subject to amortization and
are tested annually for impairment. Assets that are subject to amortization
are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment
loss is recognized in the amount by which the asset’s carrying amount
exceeds its recoverable amount. The recoverable amount is the higher of an
asset’s fair value less costs to sell and value in use. value in use is measured
as expected future discounted cash flows. The calculation of value in use
necessitates that a number of assumptions and estimates are made. The
main assumptions concern the organic sales growth, the development of
the operating margin and the necessary operating capital employed requirement
as well as the relevant WACC rate used to discount future cash flows.
For the purposes of impairment testing, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (CGU).
Previously recognized impairment losses, with the exception of impairment
losses related to goodwill, are reversed only if a change has occurred
regarding the assumptions that formed the basis for determining the recoverable
value when the impairment loss was recognized. If this is the case a
reversal of the impairment loss is carried out in order to increase the book
value of the impaired asset to its recoverable value. A reversal of a previous
impairment loss is only recognized to the extent that the new book value
does not exceed what should have been the book value (after depreciation
and amortization) if the impairment loss had not been recognized in the first
place. Impairment losses related to goodwill are never reversed.
Leasing contracts (IAS 17)
when a leasing contract means that the Group, as the lessee, essentially
receives the economic benefits and bears the economic risk associated with
the leased asset – termed finance leases – the asset is recognized as a noncurrent
asset in the consolidated balance sheet. The net present value of
the corresponding obligation to pay leasing fees in the future is recognized
as a liability. In the consolidated statement of income, leasing payments are
divided into depreciation and interest. The Group has no significant finance
leases where it is the lessor.
Operational leases, where the Group is the lessee, are recognized as an
operating expense on a linear basis over the period of the lease in the statement
of income. In cases where the Group is the lessor, revenue is recognized
as sales on a linear basis. Depreciation is recognized under operating
income.
Accounts receivable
Accounts receivable are accounted net after provisions for probable bad
debt. Probable and recognized bad debt losses are included in the line
production expenses in the statement of income. Payments received in
advance are accounted under other current liabilities.
Inventories (IAS 2)
Inventories are valued at the lower of cost and net realizable value. Cost is
determined according to the first-in, first-out principle. The cost of finished
goods and work in progress comprises material, direct labor and other direct
costs. Net realizable value is the estimated selling price in the ordinary
course of business, less applicable variable selling expenses. The necessary
deductions for obsolescence are made.
Financial instruments: recognition and measurement
(IFRS 7/IAS 32/IAS 39 1 )
A financial instrument is any contract that gives rise to a financial asset of
one entity and a financial liability or equity instrument of another entity.
The definition of financial instruments thus includes equity instruments of
another entity but also for example contractual rights to receive cash such
as accounts receivable.
Financial instruments are recorded initially at fair value with the subsequent
measurement depending on the designation of the instrument.
The Group designates its financial instruments in
the following categories:
• Financial assets or financial liabilities at fair value through profit or loss
(including derivatives not designated as hedging instruments),
• Loans and receivables,
• Held-to-maturity investments,
• Available-for-sale financial assets,
• Financial liabilities designated for as hedged item in a fair value hedge,
• Other financial liabilities and
• Derivatives designated for hedging.
The designation depends on the purpose for which the financial instrument
is acquired. Management determines the designation of its financial instruments
at initial recognition and re-evaluates this designation at each reporting
date.
1 refers to IAS 39 in its current version as adopted by the European Union.
Annual report
Notes and comments to the consolidated financial statements
Securitas Annual report 2008
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