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Subsidiary undertakings are defined as those undertakings that arecontrolled by the Group. Control of an undertaking most commonlyexists when the Company holds, directly or indirectly through othersubsidiary undertakings, more than 50 per cent of the ordinary sharecapital and voting rights of the undertaking. The accounts of subsidiaryundertakings are drawn up at 31 March of each year. In consolidatingthe financial statements of subsidiary undertakings, intra-Grouptransactions, balances and unrealised gains and losses are eliminated.The purchase method of accounting is used to account for the acquisitionof subsidiaries by the Group. The cost of an acquisition is measuredat the fair value of the assets given, equity instruments issued andliabilities incurred or assumed at the date of exchange, plus costsdirectly attributable to the acquisition. Identifiable assets acquired andliabilities and contingent liabilities assumed in a business combinationare measured initially at their fair values at the acquisition date,irrespective of the extent of any minority interest. The excess of thecost of acquisition over the fair value of the Group’s share of theidentifiable net assets acquired is recorded as goodwill. If the cost ofacquisition is less than the fair value of the net assets of the subsidiaryacquired, the difference is recognised directly in the income statement.The Group does not consolidate an entity for which it holds over50 per cent of the share capital due to the fact that, despite thislevel of shareholding, the Group does not have the power to governthe financial and operating policies of that entity. Specifically, theGroup’s appointed directors do not constitute a majority of the Boardof Directors of the Company, the body which controls the entity.Associated undertakings are defined as those undertakings, not classifiedas subsidiary undertakings, where the Group is able to exercise asignificant influence. Associated undertakings are accounted for underthe equity method.Unrealised gains on transactions between the Group and its associatedundertakings are eliminated to the extent of the Group’s interest in theassociated undertaking. Unrealised losses are eliminated unless thetransaction provides evidence of an impairment of the asset transferred.The Group recognises as equity movements its share of transactionsbooked by associated undertakings directly in equity.Joint ventures are enterprises that are jointly controlled by theGroup and one or more other parties in accordance with contractualarrangements between the parties. The Group’s interests in jointlycontrolled entities are accounted for by proportionate consolidation.Under this method the Group includes its share of the joint ventures’income and expenses, assets and liabilities and cash flows in therelevant components of the consolidated financial statements.The Group treats transactions with minority interests as transactionswith parties external to the Group.2.3. Segment reportingDetails on the Group’s business segments can be found under note 6.The Group uses business segments as the primary segments whilegeographical segments are considered secondary.2.4. Foreign currency translation(a) Functional and presentation currencyItems included in the financial statements of each of the Group’sentities are measured using the currency of the primary economicenvironment in which the entity operates (the ‘functional currency’).Following the de-twinning of the Richemont units on 20 October2008, the functional currency of the Company changed from euroto Swiss franc. This change reflects the change in asset base and cashflow of the entity following the partial liquidation of its investment inRichemont SA. The consolidated financial statements are presented inmillions of euros (the ‘presentation currency’). Management believesthat this currency is more useful to the users of the consolidatedfinancial statements.(b) Transactions and balancesForeign currency transactions are translated into the functionalcurrency using the average exchange rates prevailing during the period.The average rates approximate actual rates at the transaction dates.Foreign exchange gains and losses resulting from the settlement ofsuch transactions and from the translation at the year-end exchangerates of monetary assets and liabilities denominated in foreign currenciesare recognised in the income statement, except where hedge accountingis applied as explained in note 3.2.(c) Subsidiary and associated undertakingsThe results and financial positions of all Group entities that havea functional currency different from the presentation currency aretranslated into the presentation currency as follows:(i)assets and liabilities for each balance sheet presented aretranslated at the closing rate at that balance sheet date;(ii) income and expenses for each income statement are translatedat the average exchange rate; and(iii) all resulting exchange differences are recognised as a separatecomponent of equity (cumulative translation adjustment reserve).Exchange differences arising from the translation of the net investmentin foreign entities and borrowings are taken to shareholders’ equityon consolidation. When a foreign operation is sold, such exchangedifferences are recognised in the income statement as part of the gainor loss on disposal.Goodwill and fair value adjustments arising on the acquisition of aforeign entity are treated as assets and liabilities of the foreign entityand are translated at the closing rate.Non-cash distributions to shareholders, acting in their capacity asshareholders are recognised at book value.Richemont Annual Report and Accounts 2009 61Consolidated financial statements