Adidas 2005 Annual Report Download - page 138

134 Financial Analysis
Cash and Cash Equivalents
Cash and cash equivalents represent cash and short-term bank deposits with maturities of
three months and less.
Receivables
Receivables are stated at nominal amounts net of impairment losses arising from allowances
for doubtful accounts. These allowances are determined on the basis of individual risk assess-
ment and past experience of losses.
Inventories
Merchandise and fi nished goods are valued at the lower of cost or net realizable value. Costs
are determined using a standard valuation method which approximates the fi rst-in, fi rst-out
method or the average cost method. Costs of fi nished goods include cost of raw materials, di-
rect 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.
Land Held-for-Sale
Land held-for-sale is measured at the lower of cost and net realizable value.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation
is computed by the straight-line method, except where the declining-balance method is more
appropriate in light of the actual utilization pattern. Useful lives are as follows:
Expenditures for maintenance and repairs are expensed as incurred. Signifi cant renewals and
improvements are capitalized and depreciated separately.
Impairment
In the event that facts and circumstances indicate that the costs of long-lived assets are im-
paired, an evaluation of recoverability is performed. An impairment loss is recognized in the
income statement 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
transferred 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 mini-
mum lease payments.
Identifi able Intangible Assets
Acquired intangible assets are valued at cost less accumulated amortization and impairment
losses. Amortization is calculated on a straight-line basis with the following useful lives:
Intangible assets with indefi nite lives are tested annually for impairment.
Expenditures for internally generated intangible assets are generally expensed as incurred
since they do not qualify for recognition.
Goodwill
Acquired goodwill is valued at cost less accumulated impairment losses. From January 1, 2005,
scheduled amortization of goodwill was ceased and goodwill is tested annually for impairment,
and additionally when there are indications of potential impairment.
Goodwill is the excess of the purchase cost over the fair value of the identifi able 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.
Useful Lives of Property, Plant and Equipment
Years
Buildings 10–50
Leasehold improvements 5–20
Equipment, machinery and furniture and fi ttings 2–10
Useful Lives of Identifi able Intangible Assets
Years
Patents, trademarks and concessions 5–10
Software 3–5