Adidas 2002 Annual Report Download - page 124

Inventories
Merchandise and finished goods are valued at the lower of cost or net realizable value. Costs are
determined using a standard valuation method which approximates the first-in, first-out method
or the average cost method. Costs of finished goods include cost of raw materials, direct labor and
manufacturing overheads. The lower of cost or net realizable value allowances are computed
consistently throughout the Group based on the age and expected future sales of the items on hand.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is
computed on a declining balance or straight-line basis on useful lives as follows:
Expenditures for maintenance and repairs are expensed as incurred. Significant renewals and
improvements are capitalized.
Investment Property Held for Sale
Investment property held for sale is measured initially at cost. For the subsequent measurement
the Group applies the cost model.
Impairment
In the event that facts and circumstances indicate that the costs of long-lived assets are impaired,
an evaluation of recoverability is performed. An exceptional write-down is made if the carrying
amount exceeds the recoverable amount.
Finance Leases
If under a lease agreement substantially all risks and rewards associated with an asset are trans-
ferred to the Group, the asset less accumulated depreciation and the corresponding liability
are recognized at the fair value of the asset or the lower net present value of the minimum lease
payments.
Goodwill and Identifiable Intangible Assets
Acquired goodwill and intangible assets are valued at cost less accumulated amortization.
Goodwill is the excess of the purchase cost over the fair value of the identifiable assets and
liabilities acquired. Goodwill arising from the acquisition of a foreign entity and any fair value
adjustments to the carrying amounts of assets and liabilities of that foreign entity are treated as
assets of the reporting entity and are translated at exchange rates prevailing at the date of the
initial consolidation.
Amortization is calculated on a straight-line basis with the following useful lives:
Expenditures for internally generated intangible assets are generally expensed as incurred
since they do not qualify for recognition.
Research and Development
Research costs are expensed as incurred. Development costs are also expensed as incurred and
are not capitalized due to the short product life cycle of sporting goods.
The Group spent approximately € 85 million and € 86 million on product research and develop-
ment for the years ending December 31, 2002 and 2001 respectively.
Investments
The Group classifies its investments into the following categories: trading, held-to-maturity and
available-for-sale.
During the reporting period the Group did not hold any trading or held-to-maturity invest-
ments.
Investments intended to be held for an undefined period of time, which may be sold in
response to liquidity needs or changes in interest rates, are classified as available-for-sale. These
are included in other non-current assets and in cash and cash equivalents.
Management determines the appropriate classification of its investments at the time of the
purchase and re-evaluates such designation on a regular basis.
122 FINANCIAL ANALYSIS CONSOLIDATED FINANCIAL STATEMENTS (IFRS) /// NOTES
USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT
Years
Buildings 10–50
Leasehold improvements 5–20
Equipment, machinery and furniture and fittings 2–10
USEFUL LIVES OF GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
Years
Goodwill 5–20
Patents, trademarks and concessions 5–10
Software 3–5