Form 20-F 2005

Financial instruments
Rhodia choose to apply IAS 32 and IAS 39 on financial instruments from January 1, 2004. Derivative instruments–interest rate
swaps and futures contracts–are recognized at fair value at each period-end closing date. Accounting for derivatives in this way
had the effect of reducing opening equity by €7 million. In the 2004 income statement, changes in the value of financial instruments
had a positive impact of €1 million. In addition, the accounting for certain assets and liabilities using the amortized cost method,
as required by IAS 39, increased finance costs by €3 million.
Gains or loss on disposal
In applying IFRS 1 First time adoption of International Financial Reporting Standards, resulted in a difference in the net carrying
amount of discontinued operations due to the reclassification of cumulative translation differences to reserves for undistributed
earnings and consequently changed the gain or loss on the 2004 disposals under IFRS.
Discounting
Non-current items on the Consolidated Balance Sheet are discounted in order to take into account market assessments of
the time value of money, where the effect is material. In the 2004 income statement, the impact of discounting was an expense of
€3 million.
Asset securitization programs
In accordance with interpretation SIC 12 Consolidation–special purpose entities, Rhodia includes in its Consolidated Financial
Statements special purpose entities over which in substance the Group exercises control. In addition, in accordance with IAS 39–
Financial instruments receivables sold to a factor or as part of a sale of receivables agreement without special purpose entities are
not derecognized if Rhodia retains substantially all of the risks and rewards associated with the transferred receivables or control of
these receivables. In particular, receivables would not be derecognized whenever the transferor retains the risk that the customers
will default.
In applying these standards and interpretations, the Group has recognized the receivables that were transferred on the balance
sheet by recognizing a corresponding financial liability. At January 1, 2004 and December 31, 2004, the amount of receivables
transferred, net of security deposits, totaled €412 million and €334 million, respectively. This consolidation had no effect on equity
at January 1, 2004 and December 31, 2004.
Consolidation of joint ventures
In accordance with IAS 31, joint ventures are proportionately consolidated. This change of accounting method had no impact
on equity and resulted in an increase of €194 million in total assets at January 1, 2004.
F-82 Form 20 - F 2005 - Rhodia