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Notes to the consolidated financial
statements, REC Group
REC Annual Report 2011
2.7 INTANGIBLE ASSETS
(A) Goodwill
Goodwill represents the excess of the cost of an acquisition over
the fair value of the REC Group’s share of the net identifiable assets
of the acquired subsidiary/associate/jointly controlled entity at the
date of acquisition. Goodwill related to associates is included in the
carrying value of investments in associates. Goodwill is carried at
cost less accumulated impairment losses.
(B) Other intangible assets
Other intangible assets that have a definite useful life are carried at
historical cost less accumulated amortization and un-reversed
impairment losses. Amortization is calculated using the straight-line
method to allocate the cost of other intangible assets over their
estimated useful lives. Amortization commences when the assets are
ready for their intended use. The RECGroup has no intangible assets
with indefinite lives other than goodwill. The assets’ residual values, if
any, amortizationmethod and useful lives are reviewed at least
annually and related amortization rates are adjusted prospectively.
(C) Research and development
Research expenditures are recognized as an expense as incurred.
Costs incurred on development projects (relating to the design,
construction and testing of a chosen alternative for new or
improved materials, devices, products, processes or systems) are
capitalized as intangible assets when it is probable that the project
will be successful considering its commercial and technological
feasibility, and costs can be measured reliably. Other development
expenditures are recognized as an expense as incurred.
Development costs previously recognized as an expense are not
recognized as an asset in subsequent periods. Development costs
with a finite useful life that have been capitalized are amortized
from the time the assets are ready for their intended use, which
normally is at commencement of the commercial use.
2.8 IMPAIRMENT AND DERECOGNITION
OF NON-FINANCIAL ASSETS
Goodwill and other intangible assets that have an indefinite useful
life are not subject to amortization and are tested at least annually
for impairment. Assets that are subject to depreciation or
amortization are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognized in a separate line
item as a part of earnings before interest and taxes (EBIT) in the
statement of income for the amount by which the asset’s carrying
amount exceeds its estimated recoverable amount. The recoverable
amount is the higher of an asset’s fair value less costs to sell and
value in use. For the purpose of assessing impairment, assets are
grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units). Goodwill is allocated
to individual or groups of cash-generating units for the purpose of
impairment testing. Generally, any indicated impairment for a
specific cash-generating unit is first allocated to goodwill, then
proportionately to other non-current assets in the cash-generating
unit, but not lower than the individual or group of assets’
recoverable amount, if determinable. See note 7 for information
on cash-generating units and the significant impairment losses
recognized in 2011. Assets other than goodwill that suffered
impairment are reviewed for possible reversal of the impairment at
each reporting date.
Losses on derecognition include assets that are disposed of and
assets with no foreseeable future economic benefits. Gains and
losses on disposals are determined by comparing proceeds with
carrying amount and are reported as a part of the statement of
income. When applicable, gains and losses on the disposal of an
entity include the carrying amount of goodwill relating to the
disposed entity. Losses due to assets assessed as having no
future economic benefits are reported as an impairment loss.
2.9 FINANCIAL ASSETS
The REC Group classifies its financial assets primarily in the
following categories: at fair value through profit or loss, and loans
and receivables. For the years ended December 31, 2011 and
2010, the REC Group had insignificant available-for-sale financial
assets and had no held-to-maturity financial assets. The
classification depends on the purpose for which the financial
assets were acquired. Management determines the classification
of its financial assets at initial recognition.
The category financial assets at fair value through profit or loss has
two sub-categories: financial assets held for trading, and those
designated at fair value through profit or loss at inception. A
financial asset is classified in this category if acquired principally
for the purpose of selling in the short term or if so designated by
management. Derivatives are also categorized as held for trading
unless they are designated as hedges in hedge accounting. Gains or
losses arising from changes in the fair value are recognized in the
statement of income as part of financial income or expenses. For
the years ended December 31, 2011 and 2010, the REC Group had
only derivatives in this category.
The category loans and receivables are non-derivative financial
assets with fixed or determinable payments that are not quoted in
an active market. Loans and receivables are carried at amortized
cost which for current receivables approximates to historical cost.
Investments are initially recognized at fair value plus transaction
costs for all financial assets not carried at fair value through profit
or loss. Investments are derecognized when the rights to receive
cash flows from the investments have expired or have been
transferred and the REC Group has transferred substantially all
risks and rewards of ownership.
2.10 ACCOUNTING FOR DERIVATIVE FINANCIAL
INSTRUMENTS AND HEDGING ACTIVITIES
TheRECGroup uses derivativefinancial instruments to hedge a
portion of its risks associatedwith interest rate and foreign currency
fluctuations. Derivatives are initially recognized at fair valueon the
date a derivative contract is entered into and are subsequently
remeasured at their fair value. Derivatives are carried as assetswhen
the fair value is positive and as liabilitieswhen the fair value is negative,
as long as theRECGroup has no intention and ability to settle the
contracts net. Themethodof recognizing the resulting gain or loss