Form 20-F 2005

Types of adjustments
Retirement and similar benefits
In the IFRS opening balance sheet, in accordance with the options allowed by IFRS 1, unamortized actuarial liabilities at
January 1, 2004 were recognized in full in provisions with a corresponding reduction on equity of €663 million. The actuarial
assumptions used for measuring these obligations under IFRS are identical to those used for measuring these obligations under
French GAAP. In addition, Rhodia choose to apply the amendment to IAS 19 Employee benefits and to immediately recognize in
equity actuarial gains and losses arising after January 1, 2004.
In the 2004 income statement, expenses recognized for retirement and similar benefits according to French standards were
reduced by €36 million, corresponding to the cancellation of amortization of actuarial gains and losses that arose prior to January 1,
2004. In addition, the profit or loss from disposals and restructuring expenses were impacted by the recognition of actuarial gains
and losses on the opening balance sheet. The net effect on the income statement associated with disposals and restructurings
was €11 million for a total net effect of €47 million.
Development expenditures
Development costs are capitalized as intangible assets and amortized retrospectively whenever the criteria set forth in
IAS 38 Intangible assets are met. At January 1, 2004, capital expenditure totaled €15 million. The net amounts capitalized are
offset by a corresponding increase in opening equity. in the 2004 income statement, the positive effect on operating profit/(loss)
was €8 million, corresponding to €10 million of new capitalized expenditures during the period, net of amortization of previously
capitalized development expenditure.
Property, plant and equipment–Approach by components of cost and replacement parts
The useful life of certain items of property, plant and equipment has been revised following application of the component
approach specified in IAS 16, Property, plant and equipment. The additional depreciation recognized at December 31, 2004 was
€11 million. Furthermore, replacement parts with a useful life of more than one year, which are recorded in inventories under French
GAAP were reclassified as property, plant and equipment under IFRS and are depreciated over their useful life. The additional
depreciation recognized at December 31, 2004 was €6 million.
Impairment of assets
Property, plant and equipment:
Under French GAAP, the Group measures impairment of property, plant and equipment by comparing the net carrying
amount of the assets to the undiscounted expected future cash flows from those assets. When this comparison indicates that an
impairment loss is necessary, the amount booked for this purpose is the difference between net carrying amount and fair value,
which is generally determined by the discounted cash flow method. In applying the principles of IAS 36 Impairment of assets, the
Group recognized a cumulative impairment loss of €11 million at December 31, 2004, of which €9 million was charged in 2004.
This additional impairment concerns primarily Rhodia Pharma Solutions.
Goodwill:
Under French GAAP, goodwill is amortized using the straight-line method over a maximum period of 40 years. In applying
the principles of IAS 36, the Group recognized additional income of €17 million, corresponding to the cancellation of goodwill
amortization recognized during the period under French GAAP. This impact was partially offset by an additional impairment of
€7 million corresponding to the difference, between the two sets of accounting standards, in the net carrying amount of goodwill
impaired in full during 2004. Furthermore, the cancellation of goodwill amortization on operations discontinued in 2004 was offset
by a €2 million decrease in the disposal gain.
Form 20 - F 2005 - Rhodia
F-81