2005 Annual report - Virbac

65
Translation of financial statements
The functional currency of the Group’s foreign subsidiaries is
their local currency.
The financial statements of foreign companies whose
functional currency is not the euro are translated in
accordance with the following principles:
❖ balance sheet items are translated at the exchange rate
ruling on the balance sheet date. The translation
adjustment resulting from the use of a different exchange
rate on opening shareholders’ equity is recorded in
shareholders’ equity in the consolidated balance sheet,
❖ income statement items are translated at the average rate
for the financial year. The translation adjustment resulting
from the use of an exchange rate that is different from the
balance sheet rate is recorded in shareholders’ equity in
the consolidated balance sheet.
Specific rule regarding the first-time adoption of IFRS: the Group has
chosen to adopt the option offered by IFRS 1, which involves resetting to
zero the translation reserve previously calculated on the translation into
euros of the financial statements of the foreign subsidiaries. The balance
of the translation reserve as at 1 January 2004 has therefore been
transferred to general reserves, with no impact on the Group’s total
shareholders’ equity. The gains or losses on any subsequent disposals of
foreign entities will be adjusted only by those accumulated translation
adjustments arising after the date of transition to IFRS.
Elimination of inter-company transactions
❖ All transactions between Group companies are
eliminated.
❖ Other intra-Group transactions:
◆ unrealised gains on inventories purchased from other
Group companies are eliminated,
◆ intra-Group dividend payments are recorded in reserves
at their gross amount.
Accounting policies
Assets and liabilities are classified in the balance sheet as
current and non-current. Those assets and liabilities with an
estimated maturity of one year or less are classified as current.
Intangible assets
In accordance with the criteria stipulated in IAS 38, an
intangible asset is recognised as an asset in the balance
sheet if it is probable that the future economic benefits
attributable to the asset will flow to the Group.
Intangible assets with indefinite useful lives are reviewed
annually to ensure that their useful lives have not become finite.
Intangible assets with finite useful lives are amortised on a
straight-line basis as from the date on which the asset is
ready for use:
❖ concessions, patents, licences and trademarks: amortised
over their useful life,
❖ software (office tools, etc): amortised over three or four
years,
❖ ERP: amortised over ten years.
Research and development costs are capitalised from the time
when they satisfy the criteria stipulated by IAS 38. As regards
the Group’s activities, most of the development costs are
associated with products the use of which requires the
obtaining of a market authorisation. The Group considers
that, until this authorisation has been obtained, not all of the
criteria of IAS 38 have been fulfilled and the costs incurred are
expensed.
In accordance with the provisions of IAS 36 “Impairment of
assets”, intangible assets are tested for impairment annually.
In the case of assets with indefinite useful lives, the tests are
carried out during the second half of the year, regardless of
whether or not there is any indication of impairment. Assets
with finite useful lives are tested for impairment as soon as
any new events or circumstances indicate that assets may be
impaired. For the purposes of this testing, the Group takes
into account sales generated by the intangible asset. When
testing intangible assets for impairment, the Group combines
a market value approach (estimate of fair value) and an
approach based on estimated future cash flows (estimate of
value in use). The future cash flows used for the impairment
tests are calculated on the basis of estimates made over a
period that may vary between a minimum of five years and a
maximum of twenty years. For the purposes of these
calculations, the Group uses a discount rate of 10%.
Goodwill
Goodwill recognised on the asset side of the balance sheet
represents the excess of the acquisition cost of the shares in the
acquired companies over the Group’s share of the fair value of
the identifiable assets, liabilities and contingent liabilities
acquired. It also includes any business goodwill acquired.
In accordance with the provisions of IAS 36 “Impairment of
assets”, the value of goodwill is tested annually. Impairment
testing is carried out during the second half of the year,
regardless of whether or not there is any indication of
impairment, and as soon as any new events or circumstances
indicate that assets may be impaired. For the purposes of this
testing, assets are grouped by cash-generating units (CGU).
In the case of goodwill, it is the legal entity that is used as
the CGU. When carrying out the tests, the Group combines a
market value approach (estimate of fair value) and an approach
based on estimated future cash flows (estimate of value in use).
For the purposes of the market value approach, the Group
compares the carrying amount of the CGU with multiples of
the operating profits generated by them. If this approach
identifies the risk of impairment for a CGU, further testing