Financial Reporting - Rexel

Effective interest rate
The effective interest rate is the rate that exactly discounts the expected stream of future cash flows through
to maturity to the current net carrying amount of the liability on initial recognition. When calculating the
effective interest rate of a financial liability, future cash flows are determined on the basis of contractual
commitments.
Transaction costs
Transaction costs are incremental costs that are directly attributable to the issue of the credit line. They
include fees and commissions paid to agents and advisers, levies by regulatory agencies and securities
exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums, or allocations of
internal administrative or overhead expenses.
For financial liabilities that are carried at amortized cost, transaction costs are included in the calculation of
amortized cost using the effective interest rate method and, in effect, amortized through the income
statement over the life of the instrument.
Net financial debt
Net financial debt includes interest-bearing borrowings and accrued interest less cash and cash equivalents.
2.14 | Employee benefits
Group companies operate various pension schemes. Some of these schemes are funded by insurance
companies or trustee-administered funds in accordance with local regulation.
Pension and other long-term benefits include two categories of benefit:
• post-employment benefits including pensions, retirement supplements and medical benefits after
retirement,
• other long-term benefits (during employment) mainly including jubilees and long service awards.
These benefits are classified as either:
• defined contribution plans when the employer pays fixed contributions into a separate entity
recognized as an expense in profit and loss and will have no legal or constructive obligation to pay
further contributions, or
• defined benefit plans when the employer guarantees a future level of benefits.
The Group’s net obligation in respect of defined post-employment benefit plans, including pension plans, is
calculated separately for each plan by estimating the amount of future benefit that employees have earned in
return for their service in the current and prior periods. That benefit is discounted to determine its present
value, and the fair value of any plan assets is deducted. The discount rate is the yield at the balance sheet
date on high quality corporate bonds that have maturity dates approximating the terms of the Group’s
obligations. The calculation is performed periodically by an independent actuary using the projected unit
credit method.
The liability recognized in the balance sheet in respect of defined benefit schemes is the present value of the
defined benefit obligation at the balance sheet date less the fair value of plan assets, together with
adjustments for unrecognized actuarial gains and losses and past service costs.
When the benefits of a plan are improved (reduced), the portion of the increased (decreased) benefit relating
to past service by employees is recognized as an expense (income) in the income statement on a straightline
basis over the average period until the benefits become vested. To the extent that the benefits vest
immediately, the expense (income) is recognized immediately in profit or loss.
The Group recognizes actuarial gains and losses (resulting from changes in actuarial assumptions) using the
corridor method. Under the corridor method, to the extent that any cumulative unrecognized actuarial gain or
loss exceeds 10 percent of the greater of the present value of the defined benefit obligation and the fair
value of plan assets, that portion is recognized in profit or loss over the expected average remaining working
lives of the employees participating in the plan. Otherwise, the actuarial gain (loss) is not recognized.
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