Unilever 2009 Annual Report Download - page 87

Notes to the consolidated financial statements Unilever Group
84 Unilever Annual Report and Accounts 2009
Financial statements
1 Accounting information and policies (continued)
Indefinite-lived intangibles are not amortised, but are subject to an
annual review for impairment (or more frequently if necessary).
Any impairment is charged to the income statement as it arises.
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. Eligible borrowing costs are capitalised as part of the
cost of an asset. 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 at least annually.
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 costs to sell.
Financial instruments
Financial assets
The classification of financial assets is determined at initial recognition
depending on the purpose for which they were acquired. Any
impairment is recognised in the income statement as it arises.
Held-to-maturity investments
Held-to-maturity investments are assets with set cash flows and fixed
maturities which Unilever intends to hold to maturity. They are held at
cost plus interest using the effective interest method, less any
impairments.
Loans and receivables
Loans and receivables have set payments and are not quoted in an
active market. They arise when the Group provides money, goods or
services. Loans and receivables are included in the balance sheet at
amortised cost.
Short-term loans and receivables are initially measured at original
invoice amount less any impairments.
Financial assets at fair value through profit or loss
A financial asset is in this category if it is intended to be sold in the
short term. They are current assets if they are expected to be realised
within 12 months. Transaction costs related to the purchase of the
assets are expensed as incurred. Derivatives are classified here unless
they are designated as hedges. Gains and losses arising from changes
in value are included in the income statement.
Available-for-sale financial assets
Available-for-sale financial assets are assets that are designated in this
category or not classified in any of the other categories. They are non-
current assets unless the Group intends to dispose of them within 12
months. Changes in value are recognised in equity until the investment
is sold or impaired, when they are included in the income statement.
Interest on available-for-sale securities is calculated using the effective
interest rate method and recognised within other income. Dividends
on equity investments are also recognised within other income.
Financial liabilities
Financial liabilities are recognised initially at fair value, net of
transaction costs. They are subsequently held at amortised cost unless
they are part of a fair value hedge. Any difference between the
amount on initial recognition and the redemption value is recognised
in the income statement using the effective interest method.
Short-term financial liabilities are measured at original invoice amount.
Derivatives
Derivatives are measured on the balance sheet at fair value and are
used primarily to manage the risks of changes in exchange and interest
rates. The Group uses foreign exchange forward contracts, interest
rate swap contracts and forward rate agreements to hedge these
exposures. The Group also uses commodity contracts to hedge some
raw materials. Contracts that can be settled in cash are treated as
financial instruments. The Group does not use derivative financial
instruments for speculative purposes.
Changes in the fair value of derivatives that do not qualify for hedge
accounting are recognised in the income statement as they arise.
Cash flow hedges
Changes in the value of derivatives used as hedges of future cash
flows are recognised in equity with any ineffective portion recognised
in the income statement. If the cash flow hedge results in the
recognition of a non-financial asset or a liability the gain or loss on the
derivative is included in the initial measurement of that asset or
liability. For other cash flow hedges amounts deferred in equity are
taken to the income statement when the hedged item affects profit
or loss.
When a hedging instrument no longer qualifies for hedge accounting,
any cumulative gain or loss is retained in equity until the forecasted
transaction occurs. If a hedged transaction is no longer expected to
occur, the cumulative gain or loss is transferred to the income
statement.
Fair value hedges
In an effective fair value hedge, the hedged item is adjusted for
changes in fair value, with the corresponding entry in the income
statement. Gains and losses on the hedging instrument are recognised
in the income statement. In a fully effective hedge the adjustments to
the income statement are of equal and opposite value. For non-
derivatives only the foreign currency element can be a hedging
instrument.
Net investment hedges
Net investment hedges are hedges of exchange risks from investments
in foreign subsidiaries. Gains and losses are recognised in equity. The
accumulated gains and losses are taken to the income statement when
the foreign operation is sold or partially disposed.
Valuation principles
The fair values of quoted investments are based on current bid prices.
For listed securities where the market is not liquid, and for unlisted
securities, the Group uses valuation techniques. These include the use
of recent arm’s length transactions, reference to other instruments that
are substantially the same and discounted cash flow calculations.