Unilever 2009 Annual Report Download - page 46

Unilever Annual Report and Accounts 2009 43
Goodwill and intangible assets
Impairment reviews in respect of goodwill and indefinite-lived
intangible assets are performed at least annually. More regular
reviews, and impairment reviews in respect of other assets, are
performed if events indicate that this is necessary. Impairment
reviews are performed by comparing the carrying value of the
asset concerned to that asset’s recoverable amount (being the
higher of value in use and fair value less costs to sell). Value in
use is a valuation derived from discounted future cash flows. The
most important assumptions when preparing these forecast cash
flows are long-term growth rates and discount rates. These are
challenged at least annually and, although these are believed to be
appropriate, changes in these assumptions could change the
outcomes of the impairment reviews.
The most significant balances of goodwill and intangible assets
relate to the regional savoury and dressings sub-product groups.
We have reviewed the carrying value of these cash generating
units by considering expected future cash flows based on historical
experience and planned growth rates and margins for the product
groups.
Please refer also to note 9 on page 93.
Financial instruments
Financial instruments are classified according to the purpose for
which the instruments were acquired. This gives rise to the
following classes: held-to-maturity investments, loans and
receivables, financial assets at fair value through profit or loss,
and available-for-sale financial assets. Please refer to note 1 on
page 84 for a description of each of these categories.
Derivative financial instruments are reported at fair value, with
changes in fair values booked through profit or loss unless the
derivatives are designated and effective as hedges of future cash
flows, in which case the changes are recognised directly in equity.
At the time the hedged cash flow results in the recognition of an
asset or a liability, the associated gains or losses on the derivative
that had previously been recognised in equity are included in the
initial measurement of the asset or liability. For hedged items that
do not result in the recognition of an asset or liability, amounts
deferred in equity are recognised in the income statement in the
same period in which the hedged item affects net profit or loss.
Changes in fair value of net investment hedges in relation to
foreign subsidiaries are recognised directly in equity.
Pensions and similar obligations
The defined benefit plan surplus or deficit in the balance sheet
comprises the total for each plan of the fair value of plan assets
less the present value of the defined benefit obligation (using a
discount rate based on high-quality corporate bonds).
Pension accounting requires certain assumptions to be made in
order to value our obligations and to determine the charges to
be made to the income statement. These figures are particularly
sensitive to assumptions for discount rates, inflation rates,
mortality rates and expected long-term rates of return on assets.
Information about sensitivity to certain of these assumptions is
given in note 19 on page 113 and 114.
The following table sets out these assumptions (except for
mortality rates), as at 31 December 2009, in respect of the four
largest Unilever pension plans. Further details of assumptions
(including mortality rates) made are given in note 19 on
pages 114 and 115.
%%%%
Nether- United
UK lands States Germany
Discount rate 5.7 5.1 5.6 5.1
Inflation 3.1 1.9 2.4 1.9
Expected long-term rate of return:
Equities 8.0 7.7 7.8 7.7
Bonds 4.9 4.6 5.0 4.6
Property 6.5 6.2 6.3 6.2
Others 6.7 5.3 2.0 5.5
These assumptions are set by reference to market conditions at the
valuation date. Actual experience may differ from the assumptions
made. The effects of such differences are recognised through the
statement of comprehensive income.
Demographic assumptions, such as mortality rates, are set having
regard to the latest trends in life expectancy, plan experience and
other relevant data. The assumptions are reviewed and updated as
necessary as part of the periodic actuarial valuation of the pension
plans. Mortality assumptions for the four largest plans are given in
more detail in note 19 on page 115.
Provisions
Provision is made, amongst other reasons, for legal matters,
disputed indirect taxes, employee termination costs and
restructuring where a legal or constructive obligation exists at the
balance sheet date and a reliable estimate can be made of the
likely outcome. See also note 18 on page 112.
Taxation
Full provision is made for deferred and current taxation at the rates
of tax prevailing at the year end unless future rates have been
substantively enacted, as detailed in note 17 on page 111.
Deferred tax assets are regularly reviewed for recoverability, and a
valuation allowance is established to the extent that recoverability
is not considered likely.