FINANCIAL REPORT - Française des Jeux

transactions when the IFRS and the interpretations in force do not deal
specifi cally with the accounting issues involved.
The main accounting policies applied in preparing the consolidated
fi nancial statements are presented below. Unless otherwise noted,
these methods have been applied consistently to all periods presented.
The consolidated financial statements have been prepared in
accordance with the principles of business continuity and independence
of accounting periods. They have been prepared under the historical
cost basis, except for assets and liabilities measured at fair value.
3.1. CONSOLIDATION
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ACCOUNTING POLICIES
The consolidated fi nancial statements as at 31 December 2010
combine the fi nancial statements of the parent company la Française
des Jeux and the subsidiaries it controls or in which it exercises joint
control or signifi cant infl uence over management and fi nancial policy.
All of these companies close their books on 31 December or are in
the process of closing at that date:
– The companies that la Française des Jeux controls, directly or
indirectly through other subsidiaries, are fully consolidated.
– The companies in which la Française des Jeux exercises joint control
(joint ventures) with a limited number of other shareholders are
proportionately consolidated.
– The companies in which la Française des Jeux has signifi cant
infl uence (associates), directly or indirectly, are accounted for using
the equity method.
Transactions between the consolidated companies, as well as the
results internal to the Group, are eliminated.
3.2. CONVERSION METHOD
3.2.1. Functional currency and presentation currency
The consolidated fi nancial statements are presented in euros, the
Group’s presentation currency. Items included in the financial
statements of each Group entity are measured using the currency of
the primary economic environment in which the entity operates
(functional currency).
3.2.2. Transactions in foreign currency
Transactions denominated in foreign currency are translated at the
current exchange rate at the time of the transaction. Receivables and
payables denominated in foreign currency are translated at the
exchange rate applicable at the balance sheet date. Translation
differences are recorded in the income statement.
3.2.3. Translation of fi nancial statements
of foreign entities
The fi nancial statements of foreign entities with a functional currency
other than that of la Française des Jeux are translated into euros using
the exchange rates applicable at the balance sheet date for assets
LA FRANÇAISE DES JEUX — 33
and liabilities, and using the average exchange rate for income and
expense items.
Differences arising from foreign currency translation are carried
directly in equity under “Translation adjustment”.
3.3.REVENUE FROM ORDINARY ACTIVITIES
La Française des Jeux operates a service business, namely the
development and operation for the French government of lottery
games and sports betting. Revenue from gaming activities (“gaming
revenue” or GR) consists of player stake, less government levies,
winnings returned to players and the hedging of current counterparty
risks, plus unclaimed scratch-game winnings and net revenue from
poker games.
Player stakes collected by way of subscription fees are matched with
the corresponding drawing events.
Revenue from ordinary activities (ROA) includes GR, plus revenues
from other activities consisting primarily of revenues generated by
la Française des Jeux from rentals to sale agents and retailers of
sales tools, and sales of maintenance and software development
services provided by LotSys and LVS.
3.4. INTANGIBLE ASSETS
3.4.1. Goodwill
Business combinations are accounted for under the purchase method.
The purchase price is allocated to the assets, liabilities and contingent
liabilities of the acquired entity based on the estimated fair value at
the acquisition date.
Purchase price adjustments dependent on future events (earn-out
payments) are included in the valuation of the cost of acquiring the
target company at the date of acquisition of a controlling interest. If
the contingent events do not materialise, or if the estimate has to be
revised after the acquisition date, any change is recorded in the
income statement.
The positive difference between the acquisition cost, plus any earnout
payments as defi ned above, and the interest portion of la
Française des Jeux in the fair value of assets and liabilities acquired,
is recognised as goodwill.
Goodwill is not amortised but is tested at least once a year for
impairment as defi ned in Note 3.6.
Costs directly attributable to the acquisition are recorded in the
income statement as incurred.