2005 Annual report - Virbac

69
In the case of exchange rate hedges, the risk hedged is the
spot risk. The contango and backwardation of forwards and
the time value of options are considered to be ineffective by
nature and are excluded from the effectiveness measurement.
The effectiveness test therefore compares the impact of the
change in spot rates between two dates on the hedged item
and the hedging instrument. The effectiveness ratio must be
between 80% and 125%.
In the case of interest rate hedges, the risk hedged is the riskfree
rate. The effectiveness is measured by means of a
comparison between the impact of the change in the rate
curve on forecast interest flows of the variable-rate liability
and on the fair value of the swap. The effectiveness ratio
must be between 80% and 125%.
In the absence of conclusive effectiveness tests and
documentation respecting the defined criteria, hedge
accounting may not be applied.
❖ Embedded derivatives
The circulation of a questionnaire aimed at identifying
embedded derivatives within the Group did not highlight
the presence of any such instruments.
Pensions schemes and other post-employment
benefits
❖ Defined contribution pension schemes
In the case of defined contribution schemes, costs incurred
by the Group in the provisions of benefits are recognised as
an expense in the period to which they relate.
❖ Defined benefit schemes
The Group’s commitments in respect of defined benefit
schemes are calculated using the projected unit credit
actuarial method.
These commitments are measured at each balance sheet
date. The actuarial information is provided by external
consultants. The actuarial assumptions used to calculate the
commitments take into account the economic conditions
prevailing in the country. The Group’s commitments are
recognised as a liability in the balance sheet and the
actuarial gains and losses are recognised immediately in the
income statement.
Other provisions
A provision is booked when the Group has a present obligation
resulting from a past event which is likely to result in an outflow
of economic benefits that can be estimated reliably.
The amount booked is the best estimate of the expenditure
required to settle the present obligation at the balance sheet
date. The amount is discounted if the effect is material.
Taxation
The Group’s subsidiaries recognise current tax on the basis
of the tax rules applicable locally. The parent company and
its main French subsidiaries are part of a consolidated tax
group. Under the terms of the tax consolidation agreement,
each consolidated company is required to account for tax as
if it were taxed as a separate entity.
The Group’s subsidiaries recognise deferred tax as soon as
there is a temporary difference between the carrying amount
of an asset or liability and its value for tax purposes.
Deferred tax assets and liabilities are not discounted.
The Group recognises deferred tax in respect of restatements
of finance leases as defined by IAS 17.
In France, the income tax rate in 2005 was 34.93%,
including supplementary contributions. In view of the fall in
supplementary contributions in 2006, a rate of 34.43% was
used to calculate French-sourced deferred tax.
Non-current assets held for sale and discontinued
operations
The Group has opted for the early adoption of IFRS 5.
Under IFRS 5, an operation must be regarded as
discontinued when the criteria for classification as held for
sale are satisfied or when the Group has disposed of the
operation. An asset is classified as held for sale if its carrying
amount will be recovered principally through a sale
transaction rather than through continuing use.
The Group did not own any assets in this category at
31 December 2005.
Revenue recognition
Sales are measured at the fair value of the consideration
received or receivable, net of any discounts, rebates and
sales taxes. Sales are recognised as follows:
- sales of goods are recognised when the goods are delivered
and ownership transferred,
- transactions in respect of the supply of services are
recognised over the period during which the services
are rendered.
Personnel costs
Personnel costs include, in particular, the costs of pension
schemes (amortisation of past service costs in the new
scheme and the cost of services rendered during the period).
Actuarial gains and losses are recognised immediately in the
income statement under personnel costs.