BOOSTING OUR BUSINESS

Notes
Cont.
Note 1
changes in value recognized in the income statement as exchange rate differences.
Changes in the value of operations-related receivables and liabilities
are recognized in operating earnings, while changes in the value of financial
receivables and liabilities are recognized in net financial items.
Currency interest rate swaps are valued at fair value and reported in
the balance sheet together with hedge accounting via Other comprehensive
income. Currency interest rate swaps were signed in connection
with the Parent Company’s issue of bonds in SEK that were exchanged
for EUR to hedge net investments in foreign operations where the loan
currency has been used in the operations. The liability in SEK was exchanged
into the same liability in EUR on both the starting date and
the date of maturity.
Hedge accounting with regard to exchange rate risk in
the net investment in foreign subsidiaries
Investments in foreign subsidiaries (net assets including goodwill) are to
some extent hedged through loans in foreign currency or forward exchange
contracts that are translated on the closing date to the exchange rate then
in effect. Translation differences for the period on financial instruments
used to hedge a net investment in a Group company are recognized in
the degree the hedge is effective in total comprehensive income, while
cumulative changes are recognized in equity (translation reserve). As a
result, translation differences that arise when Group companies are
consolidated are neutralized.
Intangible fixed assets
Goodwill
Goodwill represents the difference between the cost of an acquisition and
the fair value of the acquired assets, assumed liabilities and contingent
liabilities.
If the Group’s cost of the acquired shares in a subsidiary exceeds the
market value of the subsidiary’s net assets according to the acquisition
analysis, the difference is recognized as Group goodwill. The goodwill
that can arise through business combinations implemented through
other than a purchase of shares is recognized in the same way.
For business combinations where the cost is less than the net value of
acquired assets and assumed and contingent liabilities, the difference is
recognized directly through the income statement.
Goodwill is recognized at cost less accumulated impairment. The fair
value of goodwill is determined annually for each cash-generating unit
in relation to the unit’s performance and anticipated future cash flow. If
deemed necessary, goodwill is written down on the basis of this evaluation.
Intrum Justitia’s operations in each geographical region (Northern Europe,
Central Europe and Western Europe) are considered the Group’s cash-generating
units in this regard.
Goodwill that arises from the acquisition of a company outside Sweden
is classified as an asset in the local currency and translated in the accounts
at the balance sheet date rate.
Capitalized expenses for IT development
The Group applies IAS 38 Intangible assets.
Expenditures for IT development and maintenance are generally
expensed as incurred. Expenditures for software development that can
be attributed to identifiable assets under the Group’s control and with
anticipated future economic benefits are capitalized and recognized
as intangible assets. These capitalized costs include staff costs for the
development team and other direct and indirect costs. Borrowing costs
are included in the cost of qualified fixed assets.
Additional expenditures for previously developed software, etc. are
recognized as an asset in the balance sheet if they increase the future
economic benefits of the specific asset to which they are attributable, e.g.,
by improving or extending a computer program’s functionality beyond
its original use and estimated useful life.
IT development costs that are recognized as intangible assets are amortized
using the straight-line method over their useful lives (3–5 years).
Useful life is reassessed annually. The asset is recognized at cost less
accumulated amortization and impairment.
Costs associated with the maintenance of existing computer software
are expensed as incurred.
Client relationships
Client relationships that are recognized as fixed assets relate to fair value
revaluations recognized upon acquisition in accordance with IFRS 3. They
are amortized on a straight-line basis over their estimated period of use
(5–10 years). Useful life is reassessed annually. The asset is recognized at
cost less accumulated amortization and impairment.
Other intangible fixed assets
Other intangible fixed assets relate to other acquired rights are amortized
on a straight-line basis over their estimated period of use (3–5 years). Useful
life is reassessed annually. The asset is recognized at cost less accumulated
amortization and impairment.
Tangible fixed assets
The Group applies IAS 16 Property, plant and equipment.
Tangible fixed assets are recognized at cost less accumulated depreciation
and impairment. Cost includes the purchase price and costs directly
attributable to putting the asset into place and condition to be utilized in
the way intended. Examples of directly attributable costs are delivery and
handling, installation, consulting services and legal services. Depreciation
is booked on a straight-line basis over the asset’s anticipated useful life
(3–5 years). Useful life is reassessed annually.
The carrying value of a tangible fixed asset is excluded from the balance
sheet when the asset is sold or disposed of or when no economic
benefits are expected from its use or disposal of the asset. The gain or
loss that arises on the sale or disposal of an asset is comprised of the difference
between the sales price and the asset’s carrying value less direct
costs to sell. Gains and losses are recognized as other operating earnings.
An annual determination is made of each asset’s residual value and a
period of use.
Tangible fixed assets are recognized as an asset in the balance sheet if
it is likely that the future economic benefits will accrue to the company
and the cost of the asset can be reliably estimated.
Leasing
The Group applies IAS 17 Leases. Leasing is classified in the consolidated
accounts as either finance or operating leasing.
When a lease means that the Group, as lessee, essentially enjoys the
economic benefits and bears the economic risks attributable to the leased
asset, it is classified as a finance lease. The leased asset is recognized in
the balance sheet as a fixed asset, while the estimated present value of
future lease payments is recognized as a liability. The portion of the lease
fee that falls due for payment within one year is recognized as a current
liability, while the remainder is recognized as a long-term liability. Minimum
lease fees for finance leases are divided between interest expense and
amortization of the outstanding liability. Interest expense is divided over
the lease term so that each reporting period is charged with an amount
corresponding to a fixed interest rate for the liability recognized in each
period. Variable fees are expensed in the period in which they arise.
In operating leasing, lease payments are expensed over the lease term.
Payments are recognized in the income statement on a straight-line basis
over the lease term. Benefits received in connection with the signing of
an operating lease are recognized as part of the total lease expense in the
income statement.
Taxes
The Group applies IAS 12 Income taxes.
Income taxes consist of current tax and deferred tax. Income taxes are
recognized in the income statement unless the underlying transaction is
recognized directly in other total comprehensive income, in which case
the related tax effect is recognized in other total comprehensive income.
Current tax is tax that is to be paid or received during the year in question
applying the tax rates applicable on the balance sheet date; which
includes adjustment of current tax attributable to previous periods.
Deferred tax is calculated according to the balance sheet method based
on temporary differences between the carrying value of assets and liabilities
and their value for tax purposes. The following temporary differences
are not taken into account: temporary differences that arise in the initial
reporting of goodwill, the initial reporting of assets and liabilities in a
transaction other than a business combination and which, at the time
of the transaction, do not affect either the recognized or taxable result,
or temporary differences attributable to participations in subsidiaries and
associated companies that are not expected to be reversed within the foreseeable
future. The valuation of deferred tax is based on how the carrying
values of assets or liabilities are expected to be realized or settled. Deferred
tax is calculated by applying the tax rates and tax rules that have been set
or essentially are set as of the balance sheet date.
Deferred tax assets from deductible temporary differences and tax-
Intrum Justitia Annual Report 2015
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