Supercuts 2010 Annual Report Download - page 170

PROVALLIANCE SAS
CONSOLIDATED FINANCIAL STATEMETS
DECEMBER 31, 2009 AND 2008
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(INFORMATION AS OF DECEMBER 31, 2009 AND FOR THE YEAR THEN ENDED NOT
COVERED BY AUDITORS' REPORT INCLUDED HEREIN)
1.1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
These three groups of assets have been defined by the Group as the smallest identifiable groups of assets that generate cash inflows that
are largely independent of the cash inflows from other assets or groups of assets.
Consequently, since 2008 the Group has had the following CGUs:
• The "salons" CGU, which comprises all of the Group's directly-owned salons. The intangible assets allocated to this CGU for
impairment testing purposes include lease premiums.
• The "franchises" CGU, which comprises the franchise networks of each trademark. The intangible assets allocated to this CGU
for impairment testing purposes include the Group's portfolio of franchise agreements and a portion of the value of its
trademarks.
• The "licenses" CGU which corresponds to the license agreements signed by the Group with certain suppliers. The intangible
assets allocated to this CGU for impairment testing purposes include the remaining portion of the value of the Group's
trademarks.
Impairment tests consist of comparing the asset's carrying amount to its recoverable amount. Recoverable amount is the higher of the
asset's fair value and its value in use, calculated using the discounted cash flow method. When an asset's carrying amount exceeds its
recoverable amount, an impairment loss is recorded as an operating expense under either "Depreciation, amortization and impairment" or
"Other operating expenses", depending on the type of asset concerned.
Impairment losses are allocated first to goodwill and then to the other assets of the cash-generating unit pro rata on the basis of the
carrying amount of each asset in the unit.
1.1.6.2 Main criteria used by the Group's Accounting and Finance Departments for impairment test calculations
At December 31, 2009 the Group applied a post-tax discount rate of 10% (compared with 9.74% at December 31, 2008), which reflected
the risk-free rate and the risk premium.
A five-year projection period is used and the terminal value is determined by extrapolating to perpetuity the discounted cash flows for the
fifth year.
The sensitivity of the value of goodwill to a 0.5% increase or decrease in the weighted average cost of capital or the long-term growth rate
corresponds to a negative €3.7 million and a positive €3.8 million respectively.
1.1.6.3 Monitoring the recoverable amount of goodwill
In view of its nature, goodwill cannot be allocated to individual CGUs because the expected synergies arising from the purchase of a
company will affect all of the CGUs.
Impairment losses on goodwill are not reversed even if the asset's value in use is restored in subsequent years.
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