Airbus 2015 Annual Report Download - page 198

AIRBUS GROUP FINANCIAL STATEMENTS 2015 l 16 l
Notes to the IFRSConsolidatedFinancialStatements
2.1 Basis of Presentation
related assets under construction are written-off. Loss making
sales contracts are identified by monitoring the progress of the
contract as well as the underlying programme and updating
the estimate of contract costs, which requires significant and
complex assumptions, judgements and estimates related to
achieving certain performance standards as well as estimates
involving warranty costs (see Note3 “Key estimates and
judgements”, Note10 “Revenues, cost of sales and gross
margin” and Note 22 “Provisions, contingent assets and
contingent liabilities”).
Research and development expenses — Research and
development activities can be either contracted or self-initiated.
The costs for contracted research and development activities,
carried out in the scope of externally financed research and
development contracts, are expensed when the related
revenues are recorded.
The costs for self-initiated research are expensed when incurred.
The costs for self-initiated development are capitalised when:
 the product or process is technically feasible and clearly
defined (i.e. the critical design review is finalised);
 adequate resources are available to successfully complete
the development;
 the benefits from the assets are demonstrated (a market exists
or the internal usefulness is demonstrated) and the costs
attributable to the projects are reliably measured;
 the Group intends to produce and market or use the developed
product or process and can demonstrate its profitability.
Income tax credits granted for research and development
activities are deducted from corresponding expenses or from
capitalised amounts when earned.
Development costs which are capitalised, are recognised either
as intangible assets or, when the related development activities
lead to the construction of specialised tooling for production
(“jigs and tools”), or involve the design, construction and testing
of prototypes and models, as property, plant and equipment.
Capitalised development costs are generally amortised over
the estimated number of units produced. If the number of
units produced cannot be estimated reliably, capitalised
development costs are amortised over the estimated useful
life of the internally generated intangible asset. Amortisation of
capitalised development costs is recognised in cost of sales.
Inventories are measured at the lower of acquisition cost
(generally the average cost) or manufacturing cost and net
realisable value. Manufacturing costs comprise all costs that
are directly attributable to the manufacturing process, such as
direct material and labour, and production related overheads
(based on normal operating capacity and normal consumption
of material, labour and other production costs), including
depreciation charges. Net realisable value is the estimated
selling price in the ordinary course of the business less the
estimated costs to complete the sale. Inventories include work
in progress arising under construction contracts for which
revenues are recognised based on output methods.
Transactions in foreign currency, i.e. transactions in
currencies other than the functional currency of a Group
entity, are translated into the functional currency at the foreign
exchange rate prevailing at the transaction date. Monetary
assets and liabilities denominated in foreign currencies at the
end of the reporting period are remeasured into the functional
currency at the exchange rate in effect at that date. Except
when deferred in equity as qualifying cash flow hedges (see
Note35 “Information about financial instruments”), these foreign
exchange remeasurement gains and losses are recognised, in
line with the underlying item:
 in the profit before finance costs and income taxes if the
substance of the transaction is commercial (including sales
financing transactions); and
 in the finance costs for financial transactions.
Non-monetary assets and liabilities denominated in foreign
currencies that are stated at historical cost are translated
into functional currency at the foreign exchange rate in
effect at the date of the transaction. Translation differences
on non-monetary financial assets and liabilities that are
measured at fair value are reported as part of the fair
value gain or loss. However, translation differences of
non-monetary financial assets measured at fair value and
classified as available-for-sale are included in Accumulated
other comprehensive income (“AOCI”).
Hedge accounting — Most of the Group’s revenue is
denominated inUSdollar (“US$”), while a major portion of its
costs is incurred in euro. The Group is significantly exposed to
the risk of changes in US$/€ exchange rates. Furthermore, the
Group is exposed, though to a much lesser extent, to foreign
exchange risk arising from costs incurred in currencies other
than the euro and to other market risks such as interest rate
risk, commodity price and equity price risk.
In order to manage and mitigate those risks, the Group enters
into derivative contracts. The Group applies cash flow hedge
accounting to its derivative contracts whenever the relevant IFRS
criteria can be met. Hedge accounting ensures that derivative
gains or losses are recognised in profit or loss (mainly as part
of the revenue) in the same period that the hedged items or
transactions affect profit or loss.
The major portion of the Group’s derivative contracts is
accounted for under the cash flow hedge model. The fair value
hedge model is used only for certain interest rate derivatives.
Derivative contracts which do not qualify for hedge accounting
are accounted for at fair value through profit and loss, any related
gains or losses being recognised in financial result.
The Group’s hedging strategies and hedge accounting policies
are described in more detail in Note35 “Information about
financial instruments”.
Financial Statements 2015
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QRegistration Document 2015
Annual Report 2015 Financial Statements 2015