Annual Report 2005/06 THE WORLD OF SOUND - Sonova

sheet. Loans are measured at amortized cost. Amortized cost isthe amount at which the financial asset is measured at initialrecognition minus principal repayments, plus or minus the cumulativeamortization using the effective interest method of anydifference between that initial amount and the maturity amount,minus any reduction for impairment or uncollectibility. Theeffective interest method is a method of calculating the amortizedcost of a financial asset and of allocating the interestincome over the relevant period. The effective interest rate is therate that exactly discounts estimated future cash paymentsor receipts through the expected life of the financial instrumentor, when appropriate, a shorter period to the net carrying amountof the financial asset.Held-to-maturity investmentsHeld-to-maturity investments are non-derivative financialassets with fixed or determinable payments and fixed maturitiesthat the Group’s Management has the intention and abilityto hold to maturity. Assets under this category that have a fixedmaturity are valued at amortised cost using the effective interestrate method.Available-for-sale financial assetsAvailable-for-sale financial assets are non-derivativefinancial assets that are designated in this category or notclassified in any of the other categories. They are includedin non-current assets unless Management intends to dispose ofthe investment within 12 months of the balance sheet date.Available-for-sale financial assets are initially measured attheir fair value. After initial recognition available-for-sale financialassets are measured at fair value with gains and losses beingrecognized as a separate component of equity until the investmentis derecognized or until the investment is determined to beimpaired at which time the cumulative gain or loss previouslyreported in equity is included in the income statement.The fair values of investments that are actively traded arebased on current bid prices. If the market for a financial asset isnot active fair value is determined using valuation techniques.Impairment of financial assetsA financial asset is impaired if its carrying amount is greaterthan its estimated recoverable amount. The Group assesses,at each balance sheet date, whether there is any objective evidencethat a financial asset may be impaired. If any suchevidence exists, the Group estimates the recoverable amount ofthat asset and recognizes any impairment loss in the incomestatement. If, in a subsequent period, the amount of the impairmentloss decreases and the decrease can be objectively relatedto an event occurring after the write-down, the write-down ofthe financial asset is reversed. The reversal generally will notresult in a carrying amount of the financial asset that exceedswhat amortized cost would have been, had the impairmentnot been recognized, at the date the write-down of the financialasset is reversed. The amount of the reversal is included in netprofit or loss for the financial year.3.7 Derivative financial instruments and hedgingThe Group regularly hedges its net exposure from expectedfuture cash in- and outflows in foreign currencies with forwardcontracts. Such contracts are not qualifying hedges and aretherefore not accounted for using hedge accounting. Gainsand losses on these transactions are taken directly to the incomestatement; the corresponding positive and negative replacementvalues are recognized on the balance sheet as financialassets/financial liabilities at fair value through profit or loss.Until November 2004, the Group entered into derivative contractsin order to hedge investments in foreign entities. Suchderivative contracts were designated as hedges, with changes intheir fair value recognized in equity. However, no net investmenthedge has been made since November 2004.4. Changes in Group StructureThe following changes in the Group structure (fullyconsolidated companies) have occurred in the last 2 financialyears:Financial year 2005/06:Acquisition of CAS Produtos Médicos Ltda., Brazil, as ofOctober 4, 2005Acquisition of Metro Hearing Inc., USA, as of November 1, 2005In addition to the two main acquisitions mentioned above,4 smaller entities have been acquired during the financial year2005/06.For more detailed information regarding the acquisitionsplease refer to Note 29.Financial year 2004/05:Unitron (Sichuan) Co., Ltd, China, founded in June 2004Consolidated Financial Statements57