Annual Report - Sonova Holding AG

price variances are analyzed and credited or charged to inventory
if not related to abnormal amounts of wasted materials,
labor or other production costs. Net realizable value is the
estimated selling price in the ordinary course of business less the
estimated costs of completion and selling expenses.
Manufactured finished goods and work-in-process are valued
at the lower of production cost or net realizable value. Provisions
are established for slow-moving, obsolete and phase-out
inventory.
Tangible assets
Tangible assets (land, buildings, plant and equipment) are
valued at purchase or manufacturing cost less accumulated
depreciation and any impairment in value. Depreciation is calculated
on a straight-line basis over the expected useful lives
of the individual assets or asset categories. Where an asset
comprises several parts with different useful lives, each part
of the asset is depreciated separately over its applicable useful
life. The applicable useful lives are 25–40 years for buildings,
and 3–10 years for production facilities, machinery, equipment
and vehicles. Land is not depreciated. Leasehold improvements
are depreciated over the shorter of useful life or lease term.
Borrowing costs incurred for the construction of any qualifying
asset are capitalized during the period of time that is required
to complete and prepare the asset for its intended use. Subsequent
expenditure on an item of tangible assets is capitalized
at cost only when it is probable that future economic benefits
associated with the item will flow to the Group and the cost of
the item can be measured reliably. Expenditures for repair and
maintenance which do not increase the estimated useful lives of
the related assets are recognized as an expense in the period
in which they are incurred.
Research and development
The majority of research and development costs are expensed
as incurred. In addition to the internal costs (direct
personnel and other operating costs, depreciation on research
and development equipment and allocated occupancy costs),
total costs also include externally contracted research and
development work. Development of tooling and equipment
is recognized as an asset to the extent that it is expected that
the corresponding project is determined to be technically
and commercially feasible, thereby yielding probable future
economic benefits.
Leasing
Assets that are held under leases which effectively transfer
to the Group, the risk and rewards of ownership (finance leases)
are capitalized at the inception of the lease at the fair value of
the leased property or, if lower, at the present value of the
minimum lease payments. Minimum lease payments are the payments
over the lease term that Phonak is or can be required
to make, excluding contingent rent, costs for services and taxes
to be paid by and reimbursed to the lessor, together with any
amounts guaranteed by Phonak or by a party related to Phonak.
Assets under financial leasing are depreciated over the shorter
of their estimated useful life or the lease term. The corresponding
financial obligations are classified as “short-term debts” or
“other long-term debts”, depending on whether they are payable
within or after 12 months.
Leases of assets under which all the risks and rewards of
ownership are effectively retained by the lessor are classified as
operating leases, and payments are recognized as an expense
on a straight-line basis over the lease term unless another systematic
basis is more representative of the time pattern of
the Group’s benefit.
Intangible assets
Purchased intangible assets such as software, licences and
patents, are measured at cost less accumulated amortization and
any impairment in value. Software is amortized over a useful
life of 3 years, whereas other intangible assets are amortized over
a period of 3 to 5 years or over their expected useful lives
applying the straight-line method. Except for the goodwill Phonak
has no intangible asset with an indefinite useful life.
Business combinations and goodwill
Business combinations are accounted for using the purchase
method of accounting. The cost of a business combination is
equal to the fair values, at the date of exchange, of assets given,
liabilities incurred or assumed, and equity instruments issued
by Phonak, in exchange for control of the acquired company plus
any costs directly attributable to the business combination.
Any difference between the cost of the business combination and
Phonak’s interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities so recognized is treated as
goodwill. Goodwill is not amortized, but is assessed for impairment
annually in the first half of each financial year, or more
frequently if events or changes in circumstances indicate that
its value might be impaired.
Consolidated Financial Statements
53