Hexagon Annual Report 2019

the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Intangible assets acquired independently are measured on initial recognition at cost. The cost of intangible assets acquired as part of a business combination is recognized at fair value in the Group’s opening balance at the date of acquisition. Capitalized intangible assets are recognized at cost less any amortization and impairment. 2.13 INTANGIBLE ASSETS Internally generated intangible assets, with the exception of capitalized development expenses, are not capitalized, but expensed as incurred. The useful life is either finite or indefinite. Intangible assets with a finite useful life are amortized over their useful economic life and tested for impairment if there are any indications that the intangible asset may be impaired. The amortization method and period are assessed at least once a year. Changes to the amortization method and/or period are accounted for as a change in accounting estimate. Intangible assets with an indefinite economic life are note amortized, but are tested for impairment at least once a year, either individually or as a part of a cash-generating unit. Intangible assets with an indefinite economic life are not amortized. The economic life is assessed annually with regard to whether the assumption of an indefinite economic life can be justified. If it cannot, the change to a definite economic life is made prospectively. Patents and licenses Amounts paid for patents and licences are recognized in the balance sheet and are amortized on a straight-line basis over their useful life. The expected useful life of patents and licences varies between 6 and 17 years. Research and development cost Research costs are expensed as incurred. The development costs of projects (relating to the design and testing of new or improved products) are capitalized as intangible assets if all the following criteria are met: a) it is technically feasible to complete the intangible asset so that the asset will be available for use or for future sale; b) it is the management’s intention to complete the asset and use or sell it; c) it is possible to use or sell the asset; d) it can be demonstrated how the asset will generate future economic benefits; e) technological and financial resources are available to complete the asset; and f) the costs can be reliably measured. Other development costs are recognized as incurred. Development costs that have previously been expensed are not recognized in subsequent periods. Capitalized development costs are amortized on a straight-line basis over the estimated useful life of the asset. Capitalized development costs with an indefinite useful life or related to projects under development are tested annually for impairment in accordance with IAS 36. Customer relationships Purchased customer contracts have a finite useful life and are recognized at cost less amortization. Customer contracts and technology are amortized using the straight-line method over their estimated useful lives. Intangible assets with an indefinite useful life are not amortized but tested annually for impairment. Items of property, plant and equipment and intangible assets are tested for impairment if there is reason to believe that future earnings do not justify the asset’s carrying amount. The difference between the carrying amount and the recoverable amount is recognized as an impairment loss. The recoverable amount is the higher of the fair value less costs to sell and the value in use. 2.14 IMPAIRMENT OF NON-FINANCIAL ASSETS When testing for impairment, non-current assets are grouped at the lowest level at which it is possible to distinguish independent cash inflows (cash generating units, CGU). A CGU is the smallest identifiable group of assets that generates cash inflows which are largely independent of the cash inflows from other assets or groups of assets. At each reporting date, the Group considers the possibility of reversing previous impairment losses on non-financial assets (except goodwill and other intangible assets with an indefinite useful life). In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. 15 101 2019 AT A GLANCE FROM THE BOARD ROOM FINANCIAL STATEMENTS