148 / 220
142
/
Annual Accounts /
Notes to the Consolidated Accounts
III Transactions eliminated on consolidation
Intragroup balances and transactions, and any gains arising from intra-
group transactions, are eliminated in preparing the consolidated financial
statements. Gains arising from transactions with jointly-controlled entities
are eliminated to the extent of the Group’s interest in the entities. Losses
are eliminated in the same way as gains, but only to the extent that there
is no evidence of impairment.
A list of the Group companies is included in Note 42 to the consolidated
financial accounts.
D. Goodwill and business combinations
When the Group takes control of an integrated combination of activities
and assets corresponding to the definition of a business according to
IFRS 3 - “Business combinations”, the assets, liabilities and contingent
liabilities of the business acquired are recorded at their fair value at the
acquisition date. The goodwill represents the positive difference between
the acquisition costs (excluding acquisition-related costs), plus any
minority interests, and the fair value of the acquired net assets. If this dif-
ference is negative (“negative goodwill”), it is immediately recorded under
the income statement after confirmation of the values.
After its initial recording, the goodwill is not amortised but submitted to
an impairment test realised at least every year on the cash generating
units to which the goodwill was allocated. If the book value of a cash gen-
erating unit exceeds its value in use, the resulting writedown is recorded
under the income statement and first allocated in reduction of the possi-
ble goodwill and then to the other assets of the unit, proportionally to their
book value. An impairment booked on goodwill is not written back during
a subsequent year.
In accordance with IFRS 3, the goodwill can be set temporarily at the
acquisition and adjusted within the 12 following months.
In the event of the disposal of a cash generating unit, the amount of good-
will that is allocated to this unit is included in the determination of the gain
or loss on the disposal.
E. Translation of foreign currencies
I Foreign entities
There is no subsidiary which financial statements are denominated in a
currency other than the euro at the closing date.
II Foreign currency transactions
Foreign currency transactions are recognised initially at exchange rates
prevailing at the date of the transaction. Subsequently, at closing, mon-
etary assets and liabilities denominated in foreign currencies are trans-
lated at the then prevailing currency rate. Gains and losses resulting from
the settlement of foreign currency transactions and from the translation
of monetary assets and liabilities denominated in foreign currencies are
included in the income statement as financial income or financial charges.
F. Derivative financial instruments
The Group uses derivative financial instruments (Interest Rate Swaps, pur-
chase of CAP options, sale of FLOOR options) to hedge its exposure to
interest rate risks arising from its operational, financing and investment
activities. For more details about derivative financial instruments, see
Note 23.
Derivative financial instruments are recognised initially at cost and are
revalued at their fair value at subsequent reporting dates.
The fair value of Interest Rate Swaps, CAP options, FLOOR options and
other derivative instruments is the estimated amount the Group would
receive or pay to close the position at the closing date, taking into account
the then prevailing spot and forward interest rates, the value of the option
and the creditworthiness of the counterparties.
Revaluation is carried out for all derivative products on the basis of the
same assumptions as to rate curve and volatility using an application of
the independent provider of market data Bloomberg. This revaluation is
compared with the one given by the banks, and any significant discrep-
ancy between the two revaluations is documented. See also W below.
The accounting treatment depends on the qualification of the derivative
instrument as a hedging instrument and on the type of hedging. A hedging
relationship qualifies for hedge accounting if, and only if, all the following
conditions are met:
•
at the inception of the hedge, there is a formal designation and
documentation of the hedging relationship and the entity’s risk
management objective and strategy for undertaking the hedge;
•
the hedge is expected to be truly effective in offsetting changes in
the fair value or the cash flows attributable to the hedged risks;
•
the effectiveness of the hedge can be reliably measured;
•
the hedge is assessed on an ongoing basis and is highly effective
throughout the financial reporting periods for which the hedge was
designated.
I Fair value hedges
Where a derivative financial instrument hedges the exposure to changes
in the fair value of a recognised asset or liability or a unrecognised firm
commitment, or an identified portion of such an asset, liability or firm com-
mitment that is attributable to a particular risk, any resulting gain or loss
on the hedging instrument is recognised under the income statement. The
hedged item is also stated at its fair value for the risk being hedged, with
any gain or loss being recognised under the income statement.
II Cash flow hedges
Where a derivative financial instrument hedges the exposure to changes
in cash flows that are attributable to a particular risk associated with a
recognised asset or liability, a firm commitment or a highly likely fore-
casted transaction, the portion of the gain or loss on the hedging instru-
ment that is determined to be an effective hedge is recognised directly
under equity. The ineffective portion of the gain or loss on the hedging
instrument is immediately recognised under the income statement.
When the firm commitment or the forecasted transaction subsequently
results in the recognition of a financial asset or liability, the associated
gains or losses that were recognised directly under equity are reclassified
under the income statement in the same period or periods during which
the asset acquired or liability assumed affects the income statement.
When a hedging instrument or hedge relationship is (partially) terminated,
the cumulative gain or loss at that point is (partially) recycled under the
income statement.