Kesko's year 2007

88 Kesko's year 2007
Goodwill and other intangible assets
Goodwill represents the excess of the Group's share of the fair value of
the acquiree's net assets at the date of the acquisition. The goodwill of
companies acquired prior to 1 January 2004 corresponds to their carrying
amounts reported in accordance with the previous accounting practices,
and the carrying amount is used as the deemed cost. The classification
and accounting treatment of business combinations entered into
prior to 1 January 2004 were not adjusted in preparing the consolidated
IFRS opening balance sheet.
Goodwill is not amortised but tested annually for impairment and
whenever there is an indication of impairment. For impairment testing
purposes goodwill is allocated to the cash generating units. Goodwill is
measured at original cost and the share acquired prior to 1 January 2004
at deemed cost net of impairment. Any negative goodwill is immediately
recognised as income in accordance with IFRS 3.
Intangible assets with indefinite useful lives are not amortised. They
are tested for impairment annually and whenever there is an indication
of impairment. These intangible assets include trademarks capitalised
upon acquisition. The costs of intangible rights with definite useful lives
are stated in the balance sheet and recognised as expenses during their
useful lives. Such intangible assets include software licences and customer
relationships to which acquisition cost has been allocated upon
acquisition. The estimated useful lives are:
Computer software and licences 3–5 years
Customer and supplier relationships 10 years
Research and development
The cost of research and development activities is recognised as an
expense in the income statement. The Group has not had such development
expenses which, under certain conditions, should be recognised as
assets and written off during their useful lives in accordance with IAS 38.
Computer software
The labour costs and other direct expenditure of persons employed by the
Group, working on development projects related to the acquisition of new
computer software, are capitalised as part of the software cost. In the balance
sheet, computer software is included in intangible assets and its
cost is written off during the useful life of the software. Software maintenance
expenditure is recognised as an expense when incurred.
Tangible assets
Tangible assets mainly comprise land, buildings, machinery and equipment.
Tangible assets are carried at original cost net of planned depreciation
and any impairment. The tangible assets of acquired subsidiaries
are measured at fair value at the date of acquisition.
The machinery and equipment of buildings are treated as separate
assets and any significant expenditure related to their replacement is
capitalised. Subsequent expenditure relating to a fixed asset is only
added to the carrying amount of the asset when it is probable that future
economic benefits relating to the asset will flow to the Group and that
the cost of the asset can be reliably measured. The repair, service and
maintenance expenditure of other tangible assets is recognised as an
expense when incurred.
Tangible assets are written off on a straight-line basis during their
estimated useful lives.
The most common estimated useful lives are:
Buildings 10–40 years
Components of buildings 8–10 years
Machinery and equipment 3–8 years
Cars and transport equipment 5 years
The residual values, useful lives and depreciation methods applied to
tangible assets are reviewed at least at the end of each accounting period.
If the estimates of useful life and the expected pattern of economic benefits
are different from previous estimates, the change in the estimate is
accounted for in accordance with IAS 8.
The depreciation of a tangible asset ceases when the asset is classified
as held for sale in accordance with IFRS 5. Land is not depreciated.
Gains and losses from sales and disposals of tangible assets are recognised
in the income statement and presented as other operating
income and expenses.
Investment properties
Investment properties are properties held by the enterprise mainly to
earn rentals or for capital appreciation. The Group does not hold real
estate classified as investment properties.
Impairment
At each reporting date, the Group assesses whether there is any indication
that an asset may be impaired. If any such indication exists, the
recoverable amount of the asset is estimated. The recoverable amount of
goodwill and intangible assets with indefinite useful lives is assessed
every year whether or not there is an indication of impairment. In addition,
an impairment test is performed whenever there is an indication of
impairment.
The recoverable amount is the higher of an asset's net selling price
less the costs of disposal, and its value in use. Often it is not possible to
assess the recoverable amount for an individual asset. Then, as in the
case of goodwill, the recoverable amount is determined for the cash generating
unit to which the goodwill or asset belongs. The recoverable
amount of available-for-sale financial assets is the fair value based on
either the market price or the present value of cash flows.
An impairment loss is recognised if the carrying amount of an asset
exceeds its recoverable amount. The impairment loss is disclosed in the
income statement. An impairment loss recognised for an asset in prior
years is reversed if there has been an increase in the reassessed recoverable
amount. The reversal of an impairment loss of an asset should not
exceed the carrying amount of the asset without an impairment loss recognition.
For goodwill, a recognised impairment loss is not reversed
under any circumstances.
Leases
In accordance with IAS 17, leases that substantially transfer all the risks
and rewards incident to ownership to the Group are classified as finance
leases. An asset leased under a finance lease is recognised in the balance
sheet at the lower of its fair value at the inception date and the present
value of minimum lease payments. The rental obligations of finance
leases are recorded in interest-bearing liabilities in the balance sheet.
Lease payments are allocated between interest expense and reduction of
the lease liability. Finance lease assets are amortised over the shorter
period of the useful life and the lease term.