Atari 2011 Annual Report Download - page 55

ANNUAL FINANCIAL REPORT – REGISTRATION DOCUMENT
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“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.
Atari does not capitalize financial interest related to the acquisition of intangible assets and believes the impact to be
immaterial to the Consolidated Financial Statement of the Group.
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
According to IAS 38, An intangible asset arising from development (or from the development phase of an internal project)
shall be recognized if, and only if, an entity can demonstrate all of the following:
(a) the technical feasibility of completing the intangible asset so that it will be available for use or sale.
(b) its intention to complete the intangible asset and use or sell it.
(c) its ability to use or sell the intangible asset.
(d) how the intangible asset will generate probable future economic benefits. Among other things, the entity can
demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be
used internally, the usefulness of the intangible asset.
(e) the availability of adequate technical, financial and other resources to complete the development and to use or sell
the intangible asset.
(f) its ability to measure reliably the expenditure attributable to the intangible asset during its development.
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" mainly over a 12-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 , on average, 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".
Other intangible assets
Other intangible assets include identifiable intangible assets resulting from acquisitions of businesses (such as
trademarks and game catalogs) as well as software purchased for internal use (e.g. accounting software). With the
exception of trademarks, these assets are amortized through "General and administrative expenses" or "Research and
development expenses" on a straight-line basis over a period not exceeding their estimated useful lives (ranging from
one to four years).