Ubisoft 2007 Annual Report Download - page 63

CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2008
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a rate approximating the exchange rate at the date of the
transaction. Equity is reported at the historical rate. The
resulting translation adjustments are recognized under
translation adjustments, as a distinct component of equity.
Goodwill
All business combinations are accounted for using the pur-
chase method.
The goodwill stems from the acquisition of subsidiaries,
associates and joint ventures and is defined as the diffe-
rence between the purchase cost and the fair value of the
assets, liabilities and contingent liabilities identified at the
date of the acquisition.
Positive goodwill is not amortized but rather tested for
impairment at each closing date. The recoverable amount
of goodwill is then estimated on the basis of either the
market value or value in use. Value in use is defined as the
present value of the cash flows from the cash generating
units with which the goodwill is associated. When the mar-
ket value or the value in use falls below the carrying
amount, an irreversible impairment loss is recognized.
The cash generating units for the purposes of calculating
the impairment tests correspond to the subsidiaries
present in a single country, with the exception of good-
will on acquisitions of companies whose acquired brands
are distributed by all Group subsidiaries (Redstorm
Entertainment Inc. in the US, or Blue Byte) for which the
cash generating unit corresponds to the Group’s conso-
lidated financial statements.
The discount rate used is the government bond rate
adjusted to exclude market risks related to Ubisoft
Entertainment SA and tax.
Negative goodwill (which IFRS 3 defines as “the excess of
the cost over the acquirer's interests in the net fair value
of the assets, liabilities and contingent liabilities acquired”)
is recognized immediately in income.
Since the business assets recognized in the corporate
financial statements are the same nature as goodwill,
they are treated as goodwill in the consolidated financial
statements.
Business assets are thus not amortized but, like goodwill,
are subject to annual impairment tests at the balance sheet
date.
Brands
In accordance with IFRS 3 on business combinations or
IAS 38 on the acquisition of intangible assets, all brands
are recognized at their fair value. They are not amor-
tized, but are the subject of annual impairment tests. The
recoverable amount of the brand is then estimated on the
basis of either the market value or the value in use. Value
in use is defined as the present value of the future cash
flows from the cash generating units with which the brand
is associated. When the market value or the value in use
falls below the carrying amount, an impairment loss is
recognized.
entity’s financial and operational policies in order to obtain
benefits from its activities.
To assess control, potential voting rights that are currently
exercisable or convertible are taken into account. The
financial statements of subsidiaries are included in the
consolidated financial statements from the date on which
control is obtained to the date at which such control ends.
Associates
Associates are entities over which Ubisoft Entertainment
SA exercises significant influence on the financial and
operational policies but no control. The consolidated
financial statements include the Group share in the total
amount of profits and losses recognized by the associates,
using the equity accounting method, starting from the date
when significant influence is exercised to the date at which
such influence ends.
As of March 31, 2008, all companies controlled by the
Group are fully consolidated; only Related Designs
Software GmbH, in which the Group has a 30% interest, is
accounted for under the equity method.
Transactions eliminated in the consolidated
financial statements
Balance sheet amounts, unrealized losses and gains and
income and expenses resulting from inter-company tran-
sactions are eliminated during the process of preparing the
consolidated financial statements. The unrealized gains
resulting from transactions with associates and entities
under joint control are eliminated in proportion to the
Group’s interest in the entity. Unrealized losses are elimi-
nated in the same way as unrealized gains, but only to the
extent that they are not indicative of an impairment loss.
Translation of transactions denominated
in foreign currencies
Transactions denominated in foreign currencies are mea-
sured by applying the exchange rate prevailing at the date
of the transaction.
At closing date, all monetary assets and liabilities deno-
minated in foreign currencies are translated into euros at
the closing exchange rate. Any resulting translation
adjustments are recognized in profit and loss statement.
All non-monetary assets and liabilities denominated in
foreign currencies and measured at historical cost are
translated using the exchange rate at the date of the tran-
saction.
All non-monetary assets and liabilities denominated in
foreign currencies and measured at fair value are trans-
lated using the exchange rate prevailing on the day the fair
value was calculated.
Translation into euros of the financial
statements of foreign subsidiaries
The assets and liabilities of foreign subsidiaries, including
goodwill, are translated into euros at the closing exchange
rate. Income statement items are translated into euros at