Financial Statements - Solvay

9. Research and Development costs
Research costs are charged in the period in which they
are incurred.
Development costs are capitalized if, and only if
all the following conditions are fulfi lled:
• the product or process is clearly defi ned and
the related costs are measured reliably and can be
separately identifi ed;
• the technical feasibility of the product has been
demonstrated;
• the product or process will be placed on the market
or used internally;
• the assets will generate future economic benefi ts
(a potential market exists for the product or, where it is
to be used internally, its future utility is demonstrated);
• the technical, fi nancial and other resources required
to complete the project are available.
The capitalized development costs are amortized on
a straight-line basis over their useful lives.
Income-related grants are netted against the related
expense.
10. Impairment
Every year the Group carries out impairment tests on
goodwill. At each balance sheet date, the Group reviews
the carrying amounts of investments and tangible and
intangible assets to determine whether there is any
indication that any of these assets might have suffered
a reduction in value. Where such indication exists,
the recoverable amount of the asset is estimated in order
to determine the extent of the impairment loss.
The recoverable amount is the higher of the fair value less
costs to sell the asset and its value in use. The value in
use is the net present value of the estimated future cash
fl ows from the use of an asset. The recoverable amount
is calculated at the level of the cash-generating unit to
which the asset belongs. Where the recoverable amount
is below the carrying amount, the latter is reduced to
the recoverable amount.
This impairment is immediately charged to the income
statement as a non-recurring item. Where a previously
recorded impairment no longer exists, the carrying amount
is partially or totally re-established through non-recurring
items, except in the case of goodwill, where the writedown
cannot be reversed.
11. Inventories
Inventories are stated at the lower of purchasing cost (raw
materials and merchandise) or production cost (work in
progress and fi nished goods) and net realizable value.
Net realizable value represents the estimated selling price,
less all estimated costs of making the product ready for
sale, including marketing, selling and distribution costs.
Inventories are generally valued by the weighted average
cost method.
Cost of inventories includes the purchase, conversion and
other costs incurred to bring the inventories to their present
location and condition.
12. Financial instruments
Trade receivables
Trade receivables are stated at their nominal value less
estimated non-recoverable amounts.
- Listed fi nancial investments
Listed fi nancial investments not considered as trading
assets (securities available for sale according to IAS 39)
are valued at the stock market price on each closing
date. Unrealized profi ts and losses are recorded directly
to equity. When such assets are sold, any profi t or loss
already taken into equity is then included in the net income
for the period.
- Borrowings
Borrowings and overdrafts are accounted for in the amount
of the net proceeds received after deduction of costs.
Financial charges, including any settlement or redemption
premiums, are charged over the term of the facility.
- Trade liabilities
Trade liabilities are stated at their nominal value.
- Derivative fi nancial instruments
Derivative fi nancial instruments are initially recorded
at cost and re-measured to their fair value at every closing
date.
Changes in fair value linked to designated and effective
cash fl ow hedges are recognized immediately in equity.
Changes in fair value not linked to cash fl ow hedging
operations are recorded in the income statement.
- Cash and cash equivalents
The cash and cash equivalents consists of cash and sight
deposits, short-term deposits (under 3 months) and highly
liquid investments which are easily convertible into a known
cash amount and where the risk of a change in value is
negligible.
Financial
65
Solvay Global Annual Report 2008
Financial