2016 Annual Report For Web 7.3MB

activities to which AGI has not yet committed or significant future
investments that will enhance the asset’s performance of the CGU
being tested. These calculations require the use of estimates and
forecasts of future cash flows. Qualitative factors, including market
presence and trends, strength of customer relationships, strength of
local management, strength of debt and capital markets, and degree
of variability in cash flows, as well as other factors, are considered
when making assumptions with regard to future cash flows and the
appropriate discount rate. The recoverable amount is most sensitive
to the discount rate, as well as the forecasted margins and growth
rate used for extrapolation purposes. A change in any of the significant
assumptions or estimates used to evaluate goodwill and other nonfinancial
assets could result in a material change to the results of
operations. The key assumptions used to determine the recoverable
amount for the different CGUs are further explained in note 13.
CGUs are defined as the lowest grouping of integrated assets that
generate identifiable cash inflows that are largely independent of the
cash inflows of other assets or groups of assets. The classification of
assets into CGUs requires significant judgment and interpretations
with respect to the integration between assets, the nature of products,
the way in which management allocates resources and other relevant
factors.
DEVELOPMENT COSTS
Development costs are capitalized in accordance with the accounting
policy described in note 3. Initial capitalization of costs is based on
management’s judgment that technical and economical feasibility is
confirmed, usually when a project has reached a defined milestone
according to an established project management model.
USEFUL LIVES OF KEY PROPERTY, PLANT AND
EQUIPMENT AND INTANGIBLE ASSETS
The depreciation method and useful lives reflect the pattern in which
management expects the asset’s future economic benefits to be
consumed by AGI. Refer to note 3 for the estimated useful lives.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Where the fair value of financial assets and financial liabilities recorded
in the consolidated statements of financial position including the
determination of the fair value of the Company’s available-for-sale
asset cannot be derived from active markets, it is determined using
valuation techniques including the discounted cash flow models. The
inputs to these models are taken from observable markets where
possible, but where this is not feasible, a degree of judgment is required
in establishing fair values. The judgments include considerations
of inputs such as liquidity risk, credit risk and volatility. Changes in
assumptions about these factors could affect the reported fair value of
financial instruments.
SHARE-BASED PAYMENTS
AGI measures the cost of equity-settled share-based payment
transactions with employees by reference to the fair value of equity
instruments at the grant date, whereas the fair value of cash-settled
share-based payments is remeasured at every reporting date.
Estimating fair value for share-based payments requires determining
the most appropriate valuation model for a grant of these instruments,
which is dependent on the terms and conditions of the grant. This also
requires determining the most appropriate inputs to the valuation
model including the expected life of the option, volatility and dividend
yield.
INCOME TAXES
Uncertainties exist with respect to the interpretation of complex
tax regulations, changes in tax laws and the amount and timing of
future taxable income. Given the wide range of international business
relationships and the long-term nature and complexity of existing
contractual agreements, differences arising between the actual results
and the assumptions made, or future changes to such assumptions,
could necessitate future adjustments to taxable income and expenses
already recorded. AGI establishes provisions, based on reasonable
estimates, for possible consequences of audits by the tax authorities
of the respective countries in which it operates. The amount of such
provisions is based on various factors, such as experience of previous
93 CONSOLIDATED FINANCIAL STATEMENTS
FIELD TO CONSUMER
2016 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS 94