Pharmaceuticals Sector - Solvay

9. 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 write-down cannot be reversed.
10. 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.
11. 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.
- Bank borrowings
Bank loans and overdrafts are accounted for in
the amount of the net proceeds received. 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 heading 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.
12. Provisions
A provision is set up whenever the Group has a legal
or implicit obligation at the balance sheet date:
- resulting from a past event and
- which is likely to result in charges and
- where the amount of such charges can be reliably
estimated.
Commitments resulting from restructuring plans are
recognized at the time these plans are announced to
the persons concerned.
13. Segment information
Segment information is produced according to two
distinct criteria: a primary criterion based on the
Group’s Sectors of activity, and a secondary criterion
based on the main geographical regions.
14. Revenue recognition
A revenue is recognized once it is probable that it will
be acquired and its amount can be reliably measured.
Net sales consist of sales to third parties, less trade
discounts. They are recognized when the signifi cant
risks and rewards attached to the ownership of the
goods are transferred to the buyer.
Dividends are recorded in the income statement
when declared by the Shareholders’ Meeting of the
distributing company.
Solvay Global Annual Report 2005
63