Atari 2009 Annual Report Download - page 74

ANNUAL FINANCIAL REPORT – REGISTRATION DOCUMENT
74
2.8. GOODWILL
Goodwill arising on a business combination represents the excess of the cost of the acquisition over the fair value of the
identifiable assets, liabilities and contingent liabilities acquired. Provisional fair values are assigned at the time of the
acquisition and any adjustments to these fair values are recognized within twelve months of the acquisition date as a
retroactive restatement of goodwill. Beyond this twelve-month period adjustments are recognized directly in the income
statement.
Whenever the Group acquires a controlling interest in a company in a single transaction, the portion of assets and
liabilities attributable to minority shareholders is also recognized at fair value. If the Group subsequently acquires assets
and liabilities from minority shareholders of a controlled entity, no additional adjustment is made to reflect the
remeasurement of the fair value of those assets and liabilities. The difference between the purchase price and the
carrying amount of the assets and liabilities concerned is recognized as goodwill, unless that difference is negative, in
which case it is immediately recognized in the income statement.
Goodwill relating to consolidated entities is recognized under “Goodwill” on the assets side of the balance sheet. As
prescribed by IFRS 3, goodwill is not amortized but is subject to impairment tests at least once a year. For the purpose of
these tests, goodwill is allocated to cash-generating units (CGUs). A CGU is defined as the smallest identifiable group of
assets that generates cash flows that are largely independent of the cash inflows from other assets or groups of assets.
The methods used to test impairment of the CGUs are explained in Note 3 below.
When the recoverable amount of a CGU is less than its carrying amount, the corresponding impairment loss is allocated
in priority against goodwill and recorded in the income statement under “Impairment of goodwill” which forms part of
“Operating income (loss)”.
2.9. OTHER INTANGIBLE ASSETS
Items recorded under “Intangible assets” in the balance sheet primarily include purchased management software, rights
under purchased licenses, trademarks and video game development costs.
In accordance with the option available under IAS 23, interest on borrowings used to purchase intangible assets is
recognized as a financial expense and is not included in the cost of the assets concerned.
Licenses
User licenses for intellectual property are accounted for as intangible assets as from the execution date of the license
agreement whenever the licensor is not bound by material obligations; the capitalized value corresponds to the present
value of the sum of the minimum annual license payments provided for in the agreement. Amounts paid in excess of the
guaranteed minimum fees are recognized as an expense.
Licenses are amortized from their execution date based on the higher of the contractual rate applied to units sold or the
straight-line rate based on the term of the license. Amortization expense is recognized under "Cost of goods sold".
The Group verifies the recoverable amount of the capitalized sums on a regular basis and performs impairment tests, as
explained in Note 2.12 above, whenever there is an indication that the recognized assets may be impaired. Any
corresponding impairment losses are recognized under “Cost of goods sold” if the game to which the license relates has
been released and under “Research and development expenses” in other cases.
Video game development costs
The Group recognizes the cost of developing video games (either by its own studios or outsourced) as an intangible
asset as soon as the technical feasibility of the game is certain, which corresponds to the end of the pre-production
stage. Technical feasibility is determined on a case-by-case basis. Capitalized costs correspond to the "milestone"
payments to independent developers and actual costs directly attributable to in-house development projects.
Development costs of projects that have not reached the technical feasibility stage are recognized under "Research and
development expenses".
Capitalized development costs are amortized through "Research and development expenses" over an 18-month period
from the date the games are released, on a quarterly declining-balance basis that reflects the sales prospects of the
products concerned. This use of the declining-balance method means that 90% of a game's value is written off in the
year following its release.
The Group verifies the recoverable amount of the capitalized sums on a regular basis and performs impairment tests, as
explained in Note 2.12 above, whenever there is an indication that the recognized assets may be impaired. For games
that are in the development phase these impairment tests are performed at least once a year. Any impairment losses are
recognized in the income statement under "Research and development expenses".