Ubisoft 2012 Annual Report Download - page 95

Financial Statements
2012
90
Non-current assets acquired under finance leases
Leases that transfer practically all risks and rewards inherent in ownership of the asset are classified
as finance leases.
Non-current assets financed via finance leases are restated in the consolidated financial statements
so as to reflect the position that would have existed if the Company had used borrowed funds to
acquire the assets directly.
The amount recognized on the asset side is equal to the fair value of the asset leased or, if this value
falls below the present value of the minimum lease payments, the fair value minus accumulated
depreciation and impairment.
Deferred tax arising from the restatement of finance leases is recognized in the accounts.
Impairment tests on non-current assets
The Group carries out impairment tests on its assets at least once a year. This covers goodwill,
intangible assets and property, plant and equipment.
Non-current assets with an indefinite useful life (goodwill and brands)
For this test, goodwill and brands are grouped together as Cash Generating Units (CGU):
- For brands, the CGU corresponds to games released under the brand name;
- For goodwill on distribution activities, each CGU corresponds to the distribution subsidiary
present in the country;
- For goodwill relating to acquisitions of companies whose games are distributed by all of the
Group’s distribution subsidiaries, the CGU corresponds to the Group’s consolidated financial
statements.
The recoverable value is the higher of fair value minus cost of sale (net fair value) and its value in use.
The recoverable amount of brands is defined using the royalty method. Value in use is estimated on
the basis of the sum of discounted expected cash flows for the CGU to which the assets being tested
are attached, including the final value determined by a perpetuity projection of a future normalized
cash flow. When the market value or value in use falls below the carrying amount of assets associated
with the respective CGU (including goodwill), impairment is recognized. This is irreversible when it
relates to goodwill.
The assumptions used for changes in sales, profitability levels, exchange rates and final values are
reasonable and in line with market data available for each of the CGUs subject to impairment tests.
The value in use adopted by Ubisoft corresponds to discounted cash flows determined on the basis of
the Ubisoft management’s economic assumptions and projected business conditions. Cash flows are
based on the last available three-year budgets, then on assumed growth in sales of 10% for the last
two years and, lastly, a final value at five years. The perpetuity growth rate was 1.50% at March 31,
2012 (against 1.50% at March 31, 2011).
The recoverable amount of brands is defined using the royalty method (discounted over a period of 5
years of potential future royalties if the use of brands is subject to a concession or licensed to a third
party, taking into account a final value resulting from the perpetuity projection of a normalized cash
flow from royalties).
Discounts are calculated using a rate based on a valuation of the average cost of capital: 9.62% at
March 31, 2012 (against 8.41% at March 31, 2011).
Regarding the current distribution of the Group’s activities, the allocation of goodwill by CGU and the
overall risk premium attached to the Group included in the discount rate, the use of a single rate for all
CGUs was considered sufficient for the impairment test.