Annual Report 2010/11 - Sonova

104
3.5 derivative financial instruments and hedging
The Group regularly hedges its net exposure from expected
future cash in­ and outflows in foreign currencies with
forward contracts and options. Such contracts are not qualified
as cash flow hedges and are therefore not accounted
for using hedge accounting. Gains and losses on these transactions
are recognized directly in the income statement;
the corresponding positive and negative replacement values
are recognized on the balance sheet as “other current
financial assets/liabilities.”
In connection with the acquisition of Advanced Bionics, the
Group has entered into an interest swap agreement to
protect the company against rising interest rates. As the
agreement qualifies for hedge accounting, the effective
portion of the gain or loss on the hedging instrument is
recognized in other comprehensive income in equity,
while any ineffective portion is recognized immediately
in the income statement (refer Note 24).
3.6 Significant accounting judgements
and estimates
Key MANAGeMeNT JudGeMeNTS MAde IN APPLyING
ACCouNTING PoLICIeS
In the process of applying the Group’s accounting policies,
management may be required to make judgements, apart
from those involving estimates, which have an effect on the
amounts recognized in the financial statements.
Key ACCouNTING eSTIMATeS ANd ASSuMPTIoNS
Preparation of financial statements in conformity with IFRS
requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities,
revenue, expenses, and related disclosures. The estimates
and assumptions are continuously evaluated and are based
on experience and other factors, including expectations
of future events that are believed to be reasonable. Actual
results may differ from these estimates and assumptions.
The main estimates and assumptions, with the potential of
causing an adjustment, are discussed below.
CoST oF BuSINeSS CoMBINATIoNS
A business combination agreement may provide for an
adjustment to the cost of the combination contingent
on future events. If the future events do not occur or the
estimate needs to be revised, the cost of a business combination
is revised accordingly, with a resultant change in
the carrying value of good will (for business combinations
entered into before April 1, 2010) or in the income statement
(for business combinations entered into after April 1,
2010). As at the end of the financial year 2010/11 such
costs contingent on future events amount to CHF 28.0
million (previous year CHF 84.3 million) and are disclosed
under provisions for earn­out (for business combinations
entered into before April 1, 2010) or other current financial
liabilities (for business combinations entered into after
April 1, 2010).
INTANGIBLe ASSeTS, INCLudING GoodWILL
The Group has intangible assets, including goodwill with
a carrying value of CHF 1,059.1 million (previous year CHF
1,019.9 million) as disclosed in Note 19.
Included in the intangible assets are capitalized development
costs relating to the activities of Advanced Bionics
and Phonak Acoustic Implants, amounting to CHF
21.1 million (previous year CHF 33.4 million).
The Group determines annually, in accordance with the
accounting policy stated in Note 3.3, whether any of the
assets are impaired. For the impairment tests, estimates
are made of the expected future cash flows from the use of
the asset or cash­generat ing unit. The actual cash flows
could vary significantly from these estimates.
deFeRRed TAx ASSeTS
The consolidated balance sheet includes deferred tax assets
of CHF 81.1 million (previous year CHF 97.0 million) related
to deductible differences and, in certain cases, tax loss
carryforwards provided that their utilization appears probable.
The recoverable value is based on forecasts of the
corresponding taxable Group Company over a period of
several years. As actual results may differ from these
forecasts, the deferred tax assets may need to be adjusted
accordingly.