Unilever 2005 Annual Report Download - page 147

144 Unilever Annual Report and Accounts 2005
Notes to the consolidated accounts
Unilever Group
35 First time adoption of International Financial
Reporting Standards
Unilever has adopted International Financial Reporting Standards
(IFRSs) as adopted by the EU with effect from 1 January 2005, with
a transition date of 1 January 2004. IAS 32 and IAS 39 in respect of
financial instruments and IFRS 5 in respect of non-current assets and
asset groups held for disposal have been applied with effect from
1 January 2005.
Goodwill and indefinite-lived intangible assets
Under IFRSs, from 1 January 2004 onwards, we no longer apply
systematic amortisation to goodwill and intangible assets with an
indefinite life, but instead review these assets for impairment on at
least an annual basis. The amortisation charge under previous GAAP
for all goodwill and indefinite lived intangible assets in 2004 was
€1 040 million. On disposal, goodwill acquired and written off on
acquisition prior to 1 January 1998 are no longer reinstated as part
of the profit or loss on disposal.
We have applied the exemption in IFRS 1 relating to business
combinations and therefore the carrying value under previous
GAAP as at 31 December 2003 of €13 457 million for goodwill is
its deemed cost at the date of transition to IFRSs. Under IFRSs, the
deemed cost of indefinite lived intangibles at the date of transition to
IFRSs is the original cost at which these assets were initially recognised
on the balance sheet, which amounted to €4 516 million. The write-
back of accumulated amortisation on these assets results in a deemed
cost which is €749 million higher than their carrying value as at
31 December 2003. These changes resulted in an additional
impairment charge for Slim•Fast amounting to €200 million in
the year to 31 December 2004.
Software
Under IFRSs we capitalise the costs of purchased and internally
developed software that meet the criteria for capitalisation established
by IAS 38. This software is amortised over its useful life, typically a
period of five years. The net book value of purchased and internally
developed software as at 1 January 2004 and at 31 December
2004 amounted to €103 million and €166 million respectively;
the amortisation charge for the year ended 31 December 2004
amounted to €21 million.
Development costs
The IFRS standard on intangible assets, IAS 38, requires development
costs to be capitalised where certain specific criteria are met. Costs
may only be capitalised once the flow of economic benefits is assured.
For Unilever this is evident only shortly before a product is launched
into the market and the level of costs incurred after these criteria have
been met is not significant.
Biological assets
Under IFRSs we recognise biological assets, being tea bushes and
oil palm trees, at fair value less estimated point-of-sale costs. Any
changes in the fair value of such biological assets are recognised in
the income statement. Point-of-sale costs include all costs that would
be necessary to sell the assets, excluding costs necessary to get them
to market.
The fair value of tea bushes and oil palm trees as at 1 January
2004 and 31 December 2004 was €29 million and €33 million
respectively. The net effect on the income statement for the year
ended 31 December 2004 was a credit of €5 million.
Pensions and similar obligations
Under IFRSs Unilever’s accounting policy for pensions is substantially
unchanged, since we apply the option allowed under IAS 19 to take
actuarial gains and losses directly to equity through the Statement
of Recognised Income and Expense (SORIE). There are, however, a
number of minor differences under IAS 19 that give rise to small
variations in the figures previously reported. The most significant
of these changes are the use of the government bond rate as the
discount rate for calculating pension liabilities in countries where
no AA corporate bond rate exists and the required use of bid value
to measure plan assets rather than mid-market value.
In addition, deferred tax balances arising in respect of pension assets
and liabilities are no longer netted off against those pension balances,
but under IFRSs are classified together with other deferred tax
balances. The deferred tax balance relating to pensions under previous
GAAP amounted to assets of €1 445 million and liabilities of €252
million as at 1 January 2004 and assets of €1 519 million and
liabilities of €208 million as at 31 December 2004.
The impact of the change in the remeasurement of plan assets to a
bid value basis was a decrease of €34 million as at 1 January 2004
and a decrease of €36 million as at 31 December 2004. Pension
liabilities did not change at 1 January 2004 and increased by
€15 million as at 31 December 2004. The impact on the income
statement for the year ended 31 December 2004 was a credit
of €1 million.
Deferred tax
Under IFRSs deferred tax is recognised in respect of all taxable
temporary differences arising between the tax base and the
accounting base of balance sheet items. This means that deferred tax
is recognised on certain temporary differences that would not have
given rise to deferred tax under previous GAAP.
The additional deferred tax included in the balance sheet under IFRSs
amounted to a net movement excluding reclassifications of €1 095
million as at 1 January 2004 and €1 068 million as at 31 December
2004. Included in these amounts is a deferred tax liability relating to
intangible assets (trademarks and unpatented technologies) which
were recognised at the time of the Bestfoods acquisition. As the
Bestfoods acquisition was a share-based transaction, these intangible
assets have a zero tax base. IAS 12 requires that a deferred tax liability
amounting to €1 144 million as at 1 January 2004 and €1 071 million
as at 31 December 2004 is recognised in respect of these intangible
assets. Normally, recognition of this deferred tax liability would lead to
a corresponding increase in goodwill, but under the exemption applied
under IFRS 1 relating to business combinations Unilever is precluded
from adjusting the carrying value of goodwill in respect of acquisitions
prior to the transition date. Recognition of this new deferred tax
liability under IFRSs therefore resulted in an equivalent reduction in
equity at the transition date.