Reebok 2012 Annual Report Download - page 221

adidas Group
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2012 Annual Report
Consolidated Financial Statements
199
2012
Notes
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04.8
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Inventories
Merchandise and finished goods are valued at the lower of cost or net
realisable value, which 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. Costs are determined
using a standard valuation method: the “average cost method”. Costs
of finished goods include cost of raw materials, direct labour and the
components of the manufacturing overheads which can reasonably
be attributed. The allocation of overheads is based on the planned
average utilisation. The net realisable value allowances are computed
consistently throughout the Group based on the age and expected future
sales of the items on hand.
Assets/liabilities classified as held for sale
Assets/liabilities classified as held for sale are primarily non-current
assets and liabilities expected to be recovered principally through sale
rather than through continuing use. These are measured at the lower of
their carrying amount and fair value less costs to sell. Assets classified
as held for sale are not depreciated on a straight-line basis.
Property, plant and equipment
Property, plant and equipment are measured at amortised cost. This
comprises any costs directly attributable to bringing the asset to the
condition necessary for it to be capable of operating in the manner
intended by Management less accumulated depreciation (except for
land and construction in progress) and accumulated impairment losses.
Depreciation is recognised over the estimated useful life utilising the
“straight-line method” and taking into account any potential residual
value, except where the “declining-balance method” is more appropriate
in light of the actual utilisation pattern. Parts of an item of property,
plant and equipment with a cost that is significant in relation to the total
cost of the item are depreciated separately.
Estimated useful lives are as follows:
Estimated useful lives of property, plant and equipment
Years
Buildings and leasehold improvements 5 – 50
Technical equipment and machinery as well as other equipment
and furniture and fixtures 2 – 10
Expenditures for repairs and maintenance are expensed as incurred.
Renewals and improvements are capitalised and depreciated separately,
if the recognition criteria are met.
Impairment losses
If facts and circumstances indicate that non-current assets (e.g.
property, plant and equipment, intangible assets including goodwill and
certain financial assets) might be impaired, the recoverable amount
is determined. It is measured at the higher of its fair value less costs
to sell and value in use. An impairment loss is recognised in other
operating expenses or reported separately if the carrying amount
exceeds the recoverable amount. If there is an impairment loss for a
cash-generating unit, first the carrying amount of any goodwill allocated
to the cash-generating unit is reduced, and subsequently, provided that
the recoverable amount is lower than the carrying amount, the other
non-current assets of the unit are reduced pro rata on the basis of the
carrying amount of each asset in the unit.
Irrespective of whether there is an impairment indication, intangible
assets with an indefinite useful life and goodwill acquired in business
combinations are tested annually for impairment.
An impairment loss recognised in goodwill is not reversible. With
respect to all other impaired assets, an impairment loss recognised in
prior periods is reversed affecting the income statement 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 amortisation) if no impairment loss
had been recognised.
Leases
Under finance lease arrangements, the substantial risks and rewards
associated with an asset are transferred to the lessee. At the beginning
of the lease arrangement, the respective asset and a corresponding
liability are recognised at the fair value of the asset or, if lower, the
net present value of the minimum lease payments. For subsequent
measurement, minimum lease payments are apportioned between
the finance expense and the reduction of the outstanding liability. The
finance expense is allocated to each period during the lease term so as
to produce a constant periodic interest rate on the remaining balance of
the liability. In addition, depreciation and any impairment losses for the
associated assets are recognised. Depreciation is performed over the
lease term or, if shorter, over the useful life of the asset.
Under operating lease agreements, rent expenses are recognised on
a straight-line basis over the term of the lease.