Unilever 2007 Annual Report Download - page 75

Unilever Annual Report and Accounts 2007 73
Financial statements continued
1 Accounting information and policies (continued)
Business combinations
Business combinations are accounted for using the acquisition
accounting method. This involves recognising identifiable assets
and liabilities of the acquired business at fair value.
Acquisitions of minority interests are accounted for using the parent
entity method, whereby the difference between the consideration
and the book value of the share of the net assets acquired is recognised
as goodwill.
Goodwill
Goodwill (being the difference between the fair value of consideration
paid for new interests in group companies, joint ventures and
associates and the fair value of the Group’s share of their net
identifiable assets and contingent liabilities at the date of acquisition)
is capitalised. Goodwill is not amortised, but is subject to an annual
review for impairment (or more frequently if necessary). Any
impairment is charged to the income statement as it arises.
For the purpose of impairment testing, goodwill acquired in a
business combination is, from the acquisition date, allocated to each
of the Group’s cash generating units, or groups of cash generating
units, that are expected to benefit from the synergies of the
combination, irrespective of whether other assets or liabilities of the
acquired business are assigned to those units or group of units. Each
unit or group of units to which the goodwill is allocated represents
the lowest level within the Group at which the goodwill is monitored
for internal management purposes, and is not larger than a segment
based on either the Group’s primary or the Group’s secondary
reporting format.
Intangible assets
On acquisition of group companies, Unilever recognises any
specifically identifiable intangible assets separately from goodwill,
initially measuring the intangible assets at fair value. Separately
purchased intangible assets are initially measured at cost. Finite-lived
intangible assets mainly comprise patented and non-patented
technology, know-how and software. These assets are capitalised
and amortised on a straight-line basis in the income statement over
the period of their expected useful lives, or the period of legal rights
if shorter, none of which exceeds ten years. Periods in excess of five
years are used only where the Directors are satisfied that the life of
these assets will clearly exceed that period.
Indefinite-lived intangibles are not amortised, but are subject to an
annual review for impairment (or more frequently if necessary).
Unilever monitors the level of product development costs against
all the criteria set out in IAS 38. These include the requirement to
establish that a flow of economic benefits is probable before costs are
capitalised. For Unilever this is evident only shortly before a product is
launched into the market. The level of costs incurred after these
criteria have been met is currently insignificant.
Property, plant and equipment
Property, plant and equipment is stated at cost less depreciation
and impairment. Depreciation is provided on a straight-line basis at
percentages of cost based on the expected average useful lives of the
assets and their residual values which are reviewed periodically.
Estimated useful lives by major class of assets are as follows:
Freehold buildings 40 years
(no depreciation on freehold land)
Leasehold buildings 40 years*
Plant and equipment 2–20 years
*or life of lease if less than 40 years
Property, plant and equipment is subject to review for impairment
if triggering events or circumstances indicate that this is necessary.
Any impairment is charged to the income statement as it arises.
Other non-current assets
Joint ventures are undertakings in which the Group has an interest
and which are jointly controlled by the Group and one or more other
parties. Associates are undertakings in which the Group has an
investment and can exercise significant influence.
Interests in joint ventures and associates are accounted for using the
equity method and are stated in the consolidated balance sheet at
cost, adjusted for the movement in the Group’s share of their net
assets and liabilities. The Group’s share of the profit or loss after tax
of joint ventures and associates is included in the Group’s consolidated
profit before taxation.
Biological assets are stated at fair value less estimated
point-of-sale costs.
Financial instruments
Financial instruments are recognised when the Group becomes party
to the contract. They are initially measured at fair value (the transaction
price) adjusted, in the case of instruments not classified as fair value
through profit or loss, by directly attributable transaction costs.
Financial assets
Market purchases and sales of financial assets are recognised using
value date accounting. Financial assets, other than those which are
financial assets at fair value through profit or loss, are initially
recognised at fair value plus directly attributable transaction costs. Any
impairment of a financial asset is charged to the income statement as
it arises.
Financial assets are classified according to the purpose for which
the investments were acquired. This gives rise to the following
categories: held-to-maturity investments, loans and receivables,
available-for-sale financial assets and financial assets at fair value
through profit or loss. Unilever determines the classification of its
investments at initial recognition.
Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with
fixed or determinable payments and fixed maturities that management
has the positive intention and ability to hold to maturity. They are
included in non-current investments at amortised cost using the effective
interest method, less any amounts written off to reflect impairment.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market.
They arise when the Group provides money, goods or services directly
to a counterparty with no intention of trading the receivable. Loans
and receivables are included in trade and other receivables in the
balance sheet at amortised cost.
Short-term loans and receivables are initially measured at original
invoice amount and subsequently measured after deducting any
provision for impairment.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets
that are either designated in this category or not classified in any of
the other categories. They are included in non-current assets unless
management intends to dispose of the investment within 12 months
of the balance sheet date. When securities classified as available-for-
sale are sold or impaired, the accumulated fair value adjustments
recognised in equity are included in the income statement. Interest on
available-for-sale securities calculated using the effective interest rate
method is recognised in the income statement as part of other
income. Dividends on available-for-sale equity instruments are
recognised in the income statement as part of other income when the
Group’s right to receive payment is established.
Notes to the consolidated accounts Unilever Group