Ubisoft 2005 Annual Report Download - page 95

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UBISOFT • 2006 ANNUAL REPORT
FINANCIER
Ubisoft group’s consolidated accounts as of March 31, 2006
contracts and exchange rate options identified in the accoun-
ting as hedge instruments were deferred until the gains and
losses generated by the hedged items in question were reali-
zed. Consequently, derivatives were reported at their fair
value or historical cost, whichever was lower.
In accordance with the rules governing financial instruments
set forth in IAS 39, derivatives are posted to the balance sheet
at their fair value. Losses and gains reflecting a change in the
market value of non-hedge derivatives at the closing date are
reported on the income statement on the “Other financial
charges” line.
Note 4 Equity Swap – IAS 39
IAS 39 requires that equity swaps be posted as “Financial
assets or liabilities” at their fair value as an offset to the
income statement. An equity swap is a derivative instru-
ment, and is posted as a balance sheet asset at its fair
value, and any variations in the fair value are included in
earnings.
Note 5 Variation in non-consolidated invest-
ments – IAS 39
Equity holdings and other investment securities are classi-
fied as “Assets available for sale” as they are not held for
the purpose of making profits in the short-term. These
assets are posted to the balance sheet at their fair value.
Variations in their fair value are recorded under “Equity”.
Note 6 Changes in foreign exchange rates –
IAS 21
The company has decided to choose the option offered by
IFRS 1 to not retrospectively reconstitute the translation dif-
ferences accumulated as of 01.01.04 with respect to foreign
consolidated companies. The closing price on 03.31.04 is
thus considered the historical cost.
French standards offer a choice between translation at the
historical cost or at the closing price of the goodwill and eva-
luation upon the acquisition of a foreign company whose
accounts are translated using the closing rate method. The
company has applied the historical cost method.
IAS 21 requires that new acquisitions of assets be translated
at the closing rate, but allows companies to choose between
either option for earlier acquisitions. Ubisoft has elected to
apply the option set forth in IAS 21, in which all acquisitions
held prior to April 1, 2004 are translated at historical cost.
The impact of this standard primarily concerns goodwill, dis-
tribution rights and brands.
Note 7 Goodwill – IFRS 3
In the course of a first-time adoption of International
Financial Reporting Standards, Ubisoft has opted for the
option offered by IFRS 1 to not retrospectively restate
business combinations that took place before April 1, 2004.
- Positive goodwill
Goodwill corresponds to the difference between the acqui-
sition cost and the market value of the assets, liabilities and
contingent liabilities identified at the time of acquisition.
Goodwill are not amortized, but annual impairment tests
are conducted at the end of each accounting period. The
recoverable value of the goodwill is then estimated either
on the basis of market value or on the basis of value in use;
the latter is defined as the present value relative to the
cash-flow generating units with which the goodwill are
associated. When the market value or the value in use is
less than the accounting value, an exceptional amortization
is recorded and is irreversible. In the event of a loss in
value, the amortization is recorded under “Other opera-
ting income and expenses”.
The company has elected to use the option offered by IFRS
1 to not retrospectively restate business combinations that
took place before April 1, 2004. As a consequence,
depreciations applied prior to this date on goodwill will be
retained.
Pursuant to IFRS 3, goodwill is no longer depreciated as of
April 1, 2004.
- Negative goodwill
Under French accounting principles, negative goodwill
must be reported as a provision for risk and charges.
Under IFRS 3, negative goodwill is defined as the “excess of
the acquirer’s interests in the fair value of the assets, lia-
bilities and contingent liabilities acquired relative to their
cost” and is recorded immediately in the results.
Note 8 Internal created trademarks – IAS 38
IAS 38 forbids treating the copyrights for created trade-
marks as assets, even partially.
Note 9 Accrued expenses related to marke-
ting expenses – IAS 1
Under French standards, the charges to be distributed
include marketing expenses arising from the release of
games in the subsequent fiscal year. According to IFRS,
these marketing costs must be posted to the income state-
ment (as charges) on the date on which the service is
provided or the goods are delivered.
Note 10 Investment grants – IAS 20
Pursuant to IAS 20, the amount of any investment grants
received must be subtracted from the net value of assets
acquired by means of these grants. As a result, under IFRS
the amount of equity is reduced by the value of the grants,
which are reclassified as a deduction from the asset
purchase value.
Note 11 Charges to be apportioned – IAS 1
Under IFRS, the application of the principle of linking char-
ges with products should not lead to posting elements in the
balance sheet that do not meet the definition of an asset or
a liability. This principle implies that deferred charges and
charges to be apportioned should not be booked as assets.
Note 12 Share-based payments – IFRS 2
All compensation paid in shares or share options or
indexed to the price of an entity’s shares falls under the
provisions of IFRS 2.
The adoption of IFRS 2 governing share-based payments
entails a change in the methods used to report stock option
plans (share subscription or purchase options that Ubisoft