Chart

2 Summary of significant accounting policies

 

2.1 Basis of preparation

These financial statements are the consolidated financial statements of Tecan Group Ltd. and its subsidiaries (together referred to as the ‘Group’) for the year ended December 31, 2017. The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and their interpretations adopted by the International Accounting Standards Board (IASB).

 

The financial statements are presented in Swiss francs (CHF), rounded to the nearest thousand. They are prepared on the historical cost basis except for derivative financial instruments and the contingent consideration, which are stated at their fair value.

 

The consolidated financial statements were authorized for issue by the Board of Directors on March 8, 2018. Final approval is subject to acceptance by the Annual General Meeting of Shareholders on April 17, 2018.

 

2.2 Critical accounting estimates and judgments

The preparation of these consolidated financial statements requires management to make assumptions and estimates that affect the reported amounts of revenues, expenses, assets, liabilities and disclosure of contingent liabilities at the date of these financial statements. If in the future such assumptions and estimates deviate from the actual circumstances, the original assumptions and estimates will be modified as appropriate in the year in which the circumstances change.

 

The valuation of the following material positions is based on critical accounting estimates and judgments:

 

2.2.1 Revenue recognition – percentage of completion method

The Group applies the percentage of completion method (POC) in accounting for construction contracts as outlined in the accounting and valuation principles (see note 2.7.10). The use of the POC method requires management to determine the stage of completion by reference to the contract costs incurred for work performed to date in proportion to the estimated total contract costs (cost-to-cost method). Based on the estimated stage of completion, a respective portion of the expected revenue is recognized. If circumstances arise that may change the original estimates of revenues, costs or extent of progress towards completion, estimates are revised. These revisions may result in increases or decreases in estimated revenues or costs and are reflected in the statement of profit or loss in the period in which the circumstances that give rise to the revision become known to the management. See note 14 and 20 for more details.

 

2.2.2 Performance share matching plan (PSMP) – matching share factor

The Group established performance share matching plans. The number of matching shares is determined based on the following formula: number of shares from initial grant plus number of shares from mandatory and voluntary investments times the matching share factor. The matching share factor is dependent on the achievement of specific performance targets. In any case, the matching share factor will not be lower than 0.0 or higher than 2.5. A change in estimate of the matching share factors applied in the current period, will impact the results of future periods. See note 10 for more details.

 

2.2.3 Income taxes

At December 31, 2017, the net liability for current income taxes was CHF 12.2 million and the net asset for deferred taxes was CHF 3.8 million. Significant estimates are required in determining the current and deferred assets and liabilities for income taxes. Various internal and external factors may have favorable or unfavorable ­effects on the income tax assets and liabilities. These factors include, but are not limited to, changes in tax laws, regulations and/or rates (particularly in relation to the US tax reform), changing interpretations of existing tax laws or regulations (particularly in relation to the acceptance of intra-Group transfer prices), and changes in overall levels of pre-tax earnings. Such changes could impact the assets and liabilities recognized in the balance sheet in future periods.

 

2.2.4 Inventories – capitalized development costs

In 2010, the Group entered into an OEM agreement with a global diagnostics company. The agreement comprises the development and supply of a dedicated diagnostic instrument. The related customer-specific development costs were capitalized in the ­position inventories as part of the production costs. The delivery of the instruments, which takes place over a period of more than 10 years, started in October 2014. The customer calls the units with individual purchase orders. The Group recognizes the corresponding development costs in cost of sales upon fulfillment of the individual purchase orders. The remaining balance of capitalized development costs as of December 31, 2017 amounted to CHF 97.7 million.

 

At December 31, 2017, the net realizable value of the position was higher than the capitalized development costs. However, the assessment is highly dependent on the best estimate of the future sales quantity. A decrease in estimate could require write-downs in future periods.

 

2.2.5 Intangible assets – capitalized development costs

After the technical feasibility of in-house developed products has been demonstrated, the Group starts to capitalize the related ­development costs until the product is ready for market launch. However, there can be no guarantee that such products will complete the development phase or will be commercialized, or that market conditions will not change in the future, requiring a revision of management’s assessment of future cash flows related to those products. Such changes could lead to additional amortization and impairment charges. At the end of 2017, the Group has capitalized development costs in the amount of CHF 24.8 million as disclosed in note 18.

 

2.2.6 Impairment test on goodwill

At December 31, 2017 total goodwill amounted to CHF 101.6 million. The Group performed the mandatory annual impairment tests at the end of June and December respectively. Based on these tests, there was no need for the recognition of any impairment. However, the calculation of the recoverable amounts requires the use of estimates and assumptions. The key assumptions are disclosed in note 18.

2.3 Introduction of new and amended accounting standards and interpretations

The accounting policies are consistent with those applied in the previous year, except for the introduction of the following new or revised/amended standards and interpretations, effective as from January 1, 2017:

 

Standard/interpretation1

IAS 7 amended ‘Statement of Cash Flows’ – Disclosure Initiative

IAS 12 amended ‘Income taxes’ – Recognition of Deferred Tax Assets on Unrealised Losses

Annual improvements to IFRSs 2014-2016 Cycle

  1. IAS = International Accounting Standards, IFRS = International Financial Reporting Standards, IFRIC = Interpretations as by the IFRS Interpretations Committee (formerly International Financial Reporting Interpretations Committee)

The adoption of these new or revised/amended standards and interpretations did not result in substantial changes to the Group’s accounting policies.

 

2.4 New standards and interpretations not yet applied

The following new and revised/amended standards and interpretations have been issued, but are not yet effective and are not applied early in these consolidated financial statements:

 

Standard/interpretation1

Effective date 
for the Group

IFRIC 22 ‘Foreign Currency Transactions and Advance Consideration’

Reporting year 2018

IAS 40 amended ‘Investment Properties’ – Transfers of Investment Properties

Reporting year 2018

IFRS 2 amended ‘Share-based Payment’ – Classification and Measurement of Share-based Payment Transactions

Reporting year 2018

IFRS 9 ‘Financial Instruments’

Reporting year 2018

IFRS 15 ‘Revenue from Contracts with Customers’

Reporting year 2018

IFRIC 23 ‘Uncertainty over Income Tax Treatments’

Reporting year 2019

IFRS 16 ‘Leases’

Reporting year 2019

IFRS 17 ‘Insurance Contracts’

Reporting year 2021

IFRS 10 amended ‘Consolidated Financial Statements’ and IAS 28 amended ‘Investments in Associates and Joint Ventures’ – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

To be defined

  1. IAS = International Accounting Standards, IFRS = International Financial Reporting Standards, IFRIC = Interpretations as by the IFRS Interpretations Committee (formerly International Financial Reporting Interpretations Committee)

The Group intends to adopt these standards, if applicable, when they become effective. The impact of these changes on the consolidated financial statements is disclosed below: 

 

2.4.1 IFRS 9 ‘Financial Instruments’

The Group does not expect a significant impact on its balance sheet or equity on applying the classification and measurement requirements of IFRS 9. Trade accounts receivables meet the criteria of amortized cost measurement under IFRS 9 as well. In addition, the Group expects to continue measuring at fair value all financial instruments (derivatives and contingent consideration) currently held at fair value. Hedge accounting is not applied.

 

IFRS 9 requires the Group to record expected credit losses on its trade accounts receivable, either on a 12-month or lifetime basis. The Group will apply the simplified approach and record lifetime expected losses on all trade accounts receivable. The expected change in the allowance for doubtful accounts is not material.

 

2.4.2 IFRS 15 ‘Revenue from Contracts with Customers’

During 2016, the Group performed a preliminary assessment of IFRS 15, which was further elaborated and supplemented with a more detailed analysis in 2017. The introduction of the standard does not change the timing of revenue recognition for most of the product sales and services due to their nature. With regard to product sales, the Group does not provide extended warranties in its contracts with customers and therefore will continue to account for its assurance-type warranties under IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’, consistent with its current practice.

 

However, the adoption of IFRS 15 reduces the possibility to use the percentage of completion method and changes the timing of the revenue recognition for development services. Further, it will modify the presentation in the balance sheet and increase the disclosures in the notes. Other than the aforementioned, the Group does not expect the adoption of IFRS 15 to have any significant impact on the balance sheet, results of operations and cash flows.

 

The Group plans to adopt the new standard using the full retrospective method in accordance with IAS 8 ’Accounting Policies, Changes in Accounting Estimates and Errors’. If the new standard was introduced already as of January 1, 2017, the impact on the consolidated financial statements would have been as follows: 

 

CHF 1,000

Reported

Adjustment

Restated

Consolidated balance sheet at January 1, 2017

 

 

 

Trade acounts receivable (construction contracts in progress)

2,058 

 (2,058) 

 – 

Contract assets

 – 

1,885 

1,885 

Inventories

168,409 

2,339 

170,748 

Deferred revenue

 (80,324) 

80,324 

 – 

Contract liabilities

 – 

 (82,051) 

 (82,051) 

Deferred tax liabilites

 (14,752) 

 (42) 

 (14,794) 

 

 

 

 

Shareholder’s equity (retained earnings)

487,085 

397 

487,482 

 

 

 

 

Consolidated balance sheet at December 31, 2017

 

 

 

Trade acounts receivable (construction contracts in progress)

1,514 

 (1,514) 

 – 

Contract assets

 – 

1,123 

1,123 

Inventories

158,724 

1,493 

160,217 

Deferred tax assets

15,342 

26 

15,368 

Deferred revenue

 (75,294) 

75,294 

 – 

Contract liabilities

 – 

 (76,644) 

 (76,644) 

 

 

 

 

Shareholder’s equity (retained earnings)

550,341 

 (222) 

550,119 

 

 

CHF 1,000

Reported

Adjustment

Restated

Consolidated statement of profit or loss 2017

 

 

 

Sales

548,399 

160 

548,559 

Cost of sales

 (282,832) 

 (847) 

 (283,679) 

 

 

 

 

Operating profit

80,481 

 (687) 

79,794 

 

 

 

 

Income taxes

 (13,130) 

68 

 (13,062) 

 

 

 

 

Profit for the period

66,547 

 (619) 

65,928 

2.4.3 IFRS 16 ‘Leases’

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosures of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. At the commencement date of a lease, a lessee will recognise a liability to make lease payments (lease liability) and an asset representing the right of use of the underlying asset during the lease term (right-of-use asset). Lessees will be required to separately recognise the interest expense related to the lease liability and the depreciation expense related to the right-of-use asset. 

 

In accordance with IAS 17, all operating lease arrangements are currently reported off-balance (see note 26.2). In 2018 the Group will continue to analyse in details the impact of IFRS 16 on its consolidated financial statements. 

 

The Group will introduce the new standard on January 1, 2019, applying the modified retrospective method.

 

2.4.4 Other changes

Other changes, individually and in the aggregate, are not expected to have a significant impact on the balance sheet, results of operations and cash flows of the Group upon adoption.

2.5 Consolidation principles

 

2.5.1 Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has the right to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

 

On the loss of control, the Group derecognizes the assets and ­liabilities of the subsidiary, any non-controlling interests and other components of equity related to the subsidiary. Any resulting gain or loss is recognized in profit or loss.

 

When control is transferred in the event of a business combination, the Group is applying the acquisition method at the acquisition date.

 

2.5.2 Transactions eliminated on consolidation

Intra-Group balances and transactions, and any unrealized profits arising from intra-Group transactions, are eliminated in preparing the consolidated financial statements.

 

2.6 Foreign currency translation

Generally, all Group companies have identified their local currency as their functional currency. Transactions in other currencies are initially reported using the exchange rate at the date of the transaction. Gains and losses from the settlement of such transactions, as well as gains and losses on translation of monetary assets and liabilities denominated in other currencies, are included in net profit. 

 

Translation differences arising on intra-Group loans that, in substance, are part of the net investment in a foreign operation, are recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the foreign operation.

 

Upon consolidation, assets and liabilities of Group companies using functional currencies other than Swiss francs (foreign entities) are translated into Swiss francs (presentation currency) using year-end exchange rates. Revenues, expenses and cash flows are translated at the average exchange rates for the year. Translation differences due to the changes in exchange rates between the beginning and the end of the year and the difference between net profits translated at the average and year-end exchange rates are recognized in other comprehensive income. On the disposal of a foreign operation, the identified cumulative currency translation differences relating to that foreign operation, recognized in other comprehensive income and accumulated in the separate component of equity, are reclassified from equity to profit or loss (as a reclassification adjustment) when the gain or loss on disposal is recognized.

 

2.7 Accounting and valuation principles

 

2.7.1 Segment reporting

Segment information is presented in the same manner as in the internal reporting to the chief operating decision maker. The chief operating decision maker, responsible for strategic decisions, for the assessment of the segments’ performance and for the allocation of resources to the segments, is the Board of Directors of Tecan Group Ltd.

 

The following reportable segments were identified: 

  • Life Sciences Business (end-customer business): The business segment ‘Life Sciences Business’ supplies end users with automated workflow solutions directly. These solutions include laboratory instruments, software packages, application knowhow, services, consumables and spare parts.
  • Partnering Business (OEM business): The business segment ‘Partnering Business’ develops and manufactures OEM instruments and components that are distributed by partner companies under their own names.

The operating segments are equivalent to the reportable segments. No operating segments have been aggregated. Segment assets, purchases of property, plant and equipment and intangible assets as well as segment liabilities are not reported to the chief operating decision maker. 

 

2.7.2 Sales – revenue recognition

Goods sold and services rendered – Sales are recorded net of sales taxes and discounts, at the time the risks and benefits of ownership are substantially transferred to customers. Revenue recognition from products with material application and installation work requires a written acceptance by the customer. Revenue from service contracts is recognized in the statement of profit or loss according to the proportion of the full contract period that has already elapsed at the balance sheet date.

 

Construction contracts – As soon as the outcome of a construction contract can be estimated reliably, contract revenue and expenses are recognized in the statement of profit or loss in proportion to the stage of completion of the contract (see note 2.7.10 ‘Construction contracts’).

2.7.3 Government research subsidies

The Group receives government grants for research activities, which are unconditional. They are recognized as income when earned.

 

2.7.4 Employee benefits – retirement and long-service leave benefit plans (IAS 19)

The Group has both defined contribution and defined benefit retirement benefit plans. Defined contribution plans are retirement benefit plans under which the Group pays fixed contributions into a separate fund and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. All other retirement benefit plans are defined benefit plans.

 

Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions.

 

The liability recognized in the balance sheet in regard to defined benefit retirement benefit plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets for funded plans. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method, considering possible risk sharing arrangements. 

 

When the calculation results in a benefit to the Group, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan.

 

The components of defined benefit costs are as follows:

Service costs, which are recognized in the statement of profit or loss within operating result

Interest expense or income on net liability or asset, which is recognized in the statement of profit or loss within financial result

Remeasurements, which are recognized in other comprehensive income

Service costs include current service costs, past service costs and gains or losses on plan curtailments and settlements. When the benefits of a plan are changed, or when a plan is curtailed or settled, the portion of the changed benefits related to employee service in prior periods (past service costs), or the gains or losses on curtailments and settlements, are recognized immediately in profit or loss when the plan amendments or curtailments and settlements occur.

 

Interest expense or income is calculated by applying the discount rate to the net defined benefit liability or asset, taking into account any changes in the net defined benefit liability or asset during the period as a result of contribution and benefit payments.

 

Remeasurements arising from defined benefit plans comprise ­actuarial gains and losses, the return on plan assets (excluding ­interest income) and the effect of the asset ceiling (if applicable). Remeasurements are recognized in other comprehensive income and cannot be reclassified to profit or loss.

 

Long-service leave benefits: The method of accounting for liabilities concerning long-service leave benefits is similar to the one used for defined benefit retirement plans.

 

2.7.5 Employee benefits – termination benefits (IAS 19)

Termination benefits result from either the Group’s decision to terminate the employee’s employment before the normal retirement date or an employee’s decision to accept an offer of benefits in exchange for the termination of employment. The event that gives rise to an obligation is the termination of employment rather than employee service. A liability for termination benefits is recognized at the earlier of when the Group can no longer withdraw the offer of the termination benefits and when the Group recognizes any related restructuring costs.

 

2.7.6 Employee benefits – share-based payment (IFRS 2)

The Group has introduced several equity-settled share-based compensation plans, for which the fair value of shares or share options granted is recognized within operating result and a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become ­unconditionally entitled to the shares or share options (vesting period). The amount recognized as an expense is adjusted by an expected forfeiture rate to reflect the expected number of shares or share options that will vest.

 

The fair value of the shares granted represents the market value of one Tecan share adjusted for expected dividend payments during the vesting period. The fair value of the share options granted is measured using a trinomial model, taking into account the terms and conditions upon which the share options were granted. 

 

2.7.7 Income taxes

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognized in the statement of profit or loss except to the extent that it relates to items recognized in other comprehensive income or directly in equity (transactions with owners), in which case it is recognized in other comprehensive income or equity.

 

Deferred taxes are provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affects neither accounting profit nor taxable profit, and differences relating to investments in subsidiaries­­ to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.

 

Deferred tax assets resulting from temporary differences and tax loss carry-forwards are recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

 

In addition, deferred taxes are provided on expected dividend ­distributions in the foreseeable future from subsidiary companies (­non-recoverable withholding taxes).

 

2.7.8 Cash and cash equivalents

Cash and cash equivalents comprise cash balances and time deposits with a term of three months or less from the date of acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

 

2.7.9 Trade and other accounts receivable

Trade and other accounts receivable are stated at their amortized cost less impairment losses. For short-term receivables, nominal value equals amortized cost.

 

The allowance account in respect of accounts receivable is used to record impairment losses unless the Group decides that no recovery of the amount owed is possible; at that point the amount considered irrecoverable is written off against the financial asset directly.

 

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar assets.

 

2.7.10 Construction contracts

Some sales categories of the operating segments ‘Life Sciences Business’ (sale of instruments with exceptionally high portion of installation and application work) and ‘Partnering Business’ (sale of development services) are accounted for using the ‘percentage of completion’ method of IAS 11. The respective stage of completion is determined by reference to the contract costs incurred for work performed to date in proportion to the estimated total contract costs (cost-to-cost method).

 

According to the stage of completion, pro rata sales are recognized in the statement of profit or loss. In the balance sheet, projects in progress – netted against customers’ advances – are recognized as net assets (included in the position ‘trade accounts receivable’) or net liabilities (included in the position ‘deferred revenue’) from construction contracts. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.

 

2.7.11 Borrowing costs

The Group capitalizes borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are expensed. During the reporting period, no asset qualified for capitalization of borrowing costs (2016: none).

 

2.7.12 Inventories

Inventories are stated at the lower of purchase or production cost and net realizable value. Production costs include raw materials, components and semi-finished products, direct production costs (internal labor and external services) and production overheads. The Group applies the weighted average cost method. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Provisions are made for slow-moving items and obsolete items are written off.

 

2.7.13 Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see separate ­accounting policy). The cost of self-constructed assets includes the cost of materials, direct labor and an appropriate proportion of production overheads and borrowing costs, if they are directly attributable to a qualifying asset.

 

Assets acquired under lease contracts, which provide the Group with substantially all benefits and risks of ownership are classified as finance leases and capitalized at amounts equivalent to their fair value or, if lower, the estimated present value of the underlying minimum lease payments. The corresponding rental obligations, net of finance charges, are included in liabilities. Leased assets are depreciated over their estimated useful lives. There were no items of property, plant and equipment under finance lease as per the balance sheet date (2016: none). Payments made under operating leases are charged against income on a straight-line basis over the period of the lease.

 

Depreciation is charged to the statement of profit or loss on a straight-line basis over the estimated useful lives of items of property, plant and equipment from the date they are available for use. The estimated useful lives are as follows:

 

Land

indefinite useful life

Buildings

25 years

Leasehold improvements

shorter of useful life or lease term

Furniture and fittings

4 – 8 years

Machines and motor vehicles

2 – 8 years

Tools in connection with OEM contracts

units of production method

EDP equipment

3 – 5 years

Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

 

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment (component approach).

 

Costs for repair and maintenance are recognized as an expense as incurred.

 

2.7.14 Intangible assets

Software – Expenditure on the implementation of software, including licenses and external consulting fees, is capitalized.

 

Research costs – Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred.

 

Development costs – Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalized only if development costs can be measured reliably, the product is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalized includes the cost of materials, external services, personnel, temporary employees, overhead and borrowing costs, if they are directly attributable to a qualifying asset. Other development expenditure is recognized in profit or loss as incurred. 

 

Intangible assets acquired in a business combination – All identifiable intangible assets that are recognized applying the acquisition method are stated initially at fair value. The following valuation methods are used in order to determine the fair values at the acquisition date: multi-period excess earnings method, relief from royalty method and replacement cost approach.

 

Intangible assets are measured at cost less accumulated amortization (see below) and impairment losses (see separate accounting policy). Amortization is charged to the statement of profit or loss on a straight-line basis over the estimated useful lives of intangible assets. Intangible assets are amortized from the date they are available for use.

 

The estimated useful lives are as follows:

 

Software

3 – 5 years

Development costs

3 – 5 years

Patents

3 – 5 years

Acquired brand

2 – 10 years

Acquired technology

10 years

Acquired client relationships

7 – 17 years

Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. 

 

2.7.15 Goodwill

Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not capable of being individually identified and separately recognized. 

 

For acquisitions, the Group measures goodwill at the acquisition date as

the fair value of the consideration transferred, plus

the recognized amount of any non-controlling interests in the acquiree, plus

if the business combination is achieved in stages, the fair value of existing equity interest in the acquiree, less

the net recognized amount of the identifiable net assets acquired.

When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss.

 

After initial recognition, the Group measures goodwill at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the intangible asset might be impaired.

 

2.7.16 Impairment

The carrying amount of the Group’s non-financial assets other than inventories, assets arising from construction contracts and deferred tax assets, is reviewed at each balance sheet date to determine whether there is any indication of impairment. If such indication exists, the asset’s recoverable amount, being the higher of its fair value less costs of disposal and its value in use, is estimated. Goodwill, intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually. An impairment loss is recognized in the statement of profit or loss whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.

 

Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reviewed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. An impairment loss in respect of goodwill is not reversed.

 

2.7.17 Interest-bearing loans and borrowings

Interest-bearing loans and borrowings are recognized initially at fair value, less attributable transaction costs. Subsequent to initial recognition, interest-bearing loans and borrowings are stated at amortized cost with any difference between cost and redemption value being recognized in the statement of profit or loss over the period of the borrowings on an effective interest basis.

 

2.7.18 Trade and other accounts payable

Trade and other accounts payable are stated at their amortized cost, which equals the nominal amount for short-term payables.

 

2.7.19 Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows.

 

A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical data.

 

2.7.20 Derivatives

The Group uses derivative financial instruments to economically hedge certain exposures to foreign exchange rate risks. Hedge accounting is not applied. Derivative financial instruments are recognized initially at fair value. Subsequent to initial recognition, derivative financial instruments are also stated at fair value. Any resulting gain or loss is recognized directly in the statement of profit or loss.

 

2.7.21 Treasury shares

In case the Group purchases own shares, the consideration paid is recognized as treasury shares and presented as a deduction from equity until these shares are cancelled or sold. Any consideration received from the sale of these shares is recognized in equity.

 

EN DE