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2016 REGISTRATION DOCUMENT
HERMÈS INTERNATIONAL
170
CONSOLIDATED FINANCIAL STATEMENTS
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.3.2
Conversion of foreign companies’ financial
statements
Financial statements expressed in foreign currencies are converted in
accordance with the following principles:
s
statement of financial position items are converted at the year-end
exchange rate for each currency;
s
statement of profit or loss items are converted at the average annual
exchange rate for each currency;
s
statement of cash flows items are converted at the average annual
exchange rate for each currency;
s
the foreign currency adjustment attributable to owners of the parent
arising from the impact on equity of the difference between historical
exchange rates and year-end exchange rates, and from the use of
different exchange rates for the statement of profit or loss and state-
ment of financial position, is shown separately in consolidated equity.
The same principle is applied to non-controlling interests.
Any goodwill and any fair value adjustments arising on the acquisition of
a foreign entity are considered to be assets and liabilities of that foreign
entity. Therefore, they are expressed in the entity’s functional currency
and converted at closing rates.
1.4
Eliminations of intra-group transactions
The effect on the statement of profit or loss of intra-group transactions
suchasmargins on inventories, gains or losses ondisposals, impairment
of shares in consolidated companies, and impairment of loans to conso-
lidated companies, has been eliminated.
These transactions are also subject to income tax.
Dividends and interim dividends received by the Group from consoli-
dated companies are eliminated on consolidation. A matching amount is
recorded in consolidated reserves.
In the case of companies accounted for using the full consolidation
method, reciprocal payables and receivables as well as reciprocal
income and expenses are fully eliminated.
1.5
Structure of the consolidated statement of
financial position
InaccordancewithIAS1
PresentationofFinancialStatements,
theGroup
classifies its assets and liabilities on its statement of financial position
as current and non-current. An asset or liability is classified as current:
s
when theGroupplans to realise anasset or pay a liabilitywithin twelve
months or within the Group’s normal operating cycle;
s
when the relevant asset or liability is held for the purpose of being
traded.
In particular, IAS 12
Income Taxes
specifies that deferred tax balances
shall be classified as non-current.
1.6
First-time consolidation and goodwill
1.6.1
Subsidiaries
Business combinations, in the event that the Group gains control over
one or several other activities, are accounted for using the purchase
method.
Business combinations completed on or after 1 January 2010 are mea-
sured and recognised in accordance with IFRS 3 revised: the conside-
ration transferred (acquisition cost) is measured at the fair value of the
assets delivered, the equity issued and the liabilities incurred on the
date of the transfer. The identifiable assets and liabilities of the company
that are acquired are measured at fair value on the acquisition date. The
costs that can be directly attributed to the acquisition are recorded as
an expense.
The resulting valuation adjustments are recognized under the related
assets and liabilities, including the share attributable to non-controlling
interests, and not just the share of net assets acquired. The residual
difference, which is the difference between the transferred counterparty
and the share of net assets and liabilities measured at fair value, is
recognised under goodwill.
This valuation is carried out within no more than a year following the date
of acquisition and in the currency of the acquired entity. This period is
applicable to the valuation of identifiable assets and liabilities, to the
transferred counterparty and to the non-controlling interests.
Purchases or sales of non-controlling interests that do not lead to a
change in control are recorded as equity transactions among sharehol-
ders. Consequently, any difference between the fair value of the coun-
terparty paid or received and the corresponding book value of the equity
interest acquired or sold (without resulting in a loss of control), but that
does not provide control, is directly recorded in equity.
The valuation of identifiable intangible assets recognized upon first-time
consolidation is basedmainly on thework of independent experts, taking
into account sector-specific criteria that enable such valuations to be
subsequently monitored.
In accordance with IFRS 3 revised, goodwill is not amortised. Goodwill
is reviewed annually, when the budget is drawn up, to ensure that the
residual net value does not exceed the recoverable amount in respect of
the expected return on the investment in the related subsidiary (deter-
minedon thebasis of discounted future cash flows). If internal or external
events or circumstances bring to light indications of lost value, the fre-
quency of the impairment tests may be revised (see Note 1.8).
Impairment of the goodwill of subsidiaries is not reversible. Any impair-
ment charge is included in “Other incomeandexpenses” of the operating
income.