When it is probable that costs will generate future economic benefits, intangible assets include the cost, including accessory charges, of the purchase of assets or resources, without any physical form, used in the production of goods or in the supply of services, to rent to third parties or for administrative purposes, on condition that the cost is quantifiable in a reliable manner and that the goods are clearly identifiable and controlled by the company that owns them.
Any costs incurred after the initial purchase are included in the increase of the cost of intangible assets in direct relation to the extent to which those costs are able to generate future economic benefits.
Internal costs for producing mastheads and for the launch of newspapers, magazines or other journals are recognised in the income statement for the year in question.
Subsequent to initial recognition, intangible assets are stated at cost, net of accumulated amortisation and any accumulated impairment losses.
Intangible assets purchased separately and those purchased as part of business combinations that took place before the first adoption of IAS/IFRS are initially recognised at cost, while those purchased as part of business combination operations that took place after the first adoption of IAS/IFRS are initially recognised at fair value.
Intangible assets with a finite useful life
The cost of intangible assets with a finite useful life is systematically amortised over the useful life of the asset from the moment that the asset is available for use. The amortisation criteria depend on how the Group will receive the relative future economic benefits.
The amortisation rates reflecting the useful lives attributed to intangible assets with a finite life are as follows:
| Intangible assets with a finite useful life | Amortisation period |
|---|---|
|
|
|
| Titles | Term of licence/30 years |
| Costs of taking over lease contracts | Term of rental contract |
| Goods under concession or licence | Term of franchise or licence |
| Software | Straight line over 3 years |
| Patents and rights | Straight line over 3 to 5 years |
| Other intangible assets | Straight line over 3 to 5 years |
Intangible assets with a finite useful life are subject to an impairment test every time there is an indication of a possible loss of value. The period and method of amortisation applied are reviewed at the end of each year or more frequently, if necessary.
Variations in the expected useful life or in the way future economic benefits linked to intangible assets are expected to be earned by the Group are recognised by modifying the period or method of amortisation, and are treated as adjustments to accounting estimates.
Intangible assets with an indefinite useful life
Intangible assets are considered to have an indefinite useful life when, on the basis of a thorough analysis of the relevant factors, there is no foreseeable limit to the length of time the assets may generate income for the Group.
The intangible assets identified by the Group as having an indefinite useful life are shown in the table below:
| Intangible assets with an indefinite useful life |
|
|---|---|
|
|
|
| Titles |
|
| Series |
|
| Radio frequencies |
|
| Brands |
|
| Goodwill |
|
Goodwill represents the excess of the cost of a business combination over the Group’s purchased share in the fair value of the assets, liabilities and contingent liabilities acquired, as identifiable at the time of purchase. Goodwill and other intangible assets with an indefinite useful life are not subject to amortisation but to an impairment test of their book value. This test concerns the value of the individual assets or of the business unit that generates financial income (Cash Generating Unit) and is carried out whenever it is believed that the value has decreased, and in any case at least once a year.
In cases where goodwill is attributed to a Cash Generating Unit (or to a group of units) whose assets are partially disposed of, goodwill associated with the asset disposed of is reviewed in order to determine any capital gains or losses resulting from the transaction. In these circumstances, goodwill disposed of is measured on the basis of the value of the assets disposed of, compared with the asset still included in the Cash Generating Unit in question.
6.2 Property investments
A property investment is recognised as an asset when it is held in order to earn income from its rental or to increase its invested capital, on condition that the cost of the asset can be reliably measured and that future economic benefits will flow to the Group.
Property investments are stated at cost, which includes the purchase cost and all accessory charges directly connected to the purchase.
Costs which arise after the initial purchase are included in the increase of the cost of the property in direct relation to how much those costs are able to generate future economic benefits higher than those originally assessed.
The cost of property investments, except for that part pertaining to the cost of the land, is systematically amortised over the useful life of the asset. Depreciation criteria depend on how the relative future economic benefits accrue to the Group.
The depreciation rates that reflect the useful life attributed to the Group’s property investments are shown in the table below:
| Property investments | Depreciation rate |
|---|---|
|
|
|
| Buildings not used in business activities | 3% |
Both the useful life and the depreciation criteria are constantly reviewed and, if any significant changes are found in the assumptions previously adopted, the depreciation rate for the period in question and for successive periods is adjusted.
Gains and losses deriving from the disposal of property investments are recognised under income statement in the year in which the transaction takes place.
Property investments are reclassified when there is a change in use following to specific events.
6.3 Property, plant and equipment
Any costs attributable to the purchase of property, plant and equipment are recognised as assets, on condition that the relevant costs can be reliably calculated and any relative future economic benefits accrue to the Group.
Assets booked to property, plant and equipment are valued at cost, including any accessory charges, and are stated net of accumulated depreciation and any impairment.
Costs which arise after the initial purchase are recognised as an increase in cost in direct relation to the extent that these costs are able to improve the performance of the asset.
Assets booked to property, plant and equipment purchased as part of acquisitions and business combinations are initially recognised at fair value as determined at the time of purchase and, subsequently, at cost.
Assets recognised as property, plant and equipment, with the exception of land, are depreciated on a straight line basis during the useful life of the asset from the moment the assets are available for use.
If the assets include more than one significant component and the components have different useful lives, each individual component is depreciated separately.
The depreciation rates that generally reflect the useful lives attributed to property, plant and equipment are shown in the table below:
| Property, plant and equipment | Depreciation rate |
|---|---|
|
|
|
| Buildings used in business activities | 3% |
| Plant | 10% - 25% |
| Rotary press | 10% |
| Machinery | 15.5% |
| Equipment | 25% |
| Electronic office equipment | 30% |
| Office furniture and machines | 12% |
| Motor vehicles and transport vehicles | 20% - 30% |
| Other assets | 20% |
The residual value of assets, useful lives and the depreciation criteria applied, are reviewed on an annual basis and adjusted, if necessary, at year end.
Leasehold improvements are recognised as fixed assets and depreciated over the lower of the residual useful life of the asset and the residual term of the lease contract.
6.4 Finance lease assets
Assets acquired under finance leases, which transfer all the relevant risks and benefits to the Group, are recognised at current value or, if lower, at the value of the minimum lease payments, including the amount to be paid for exercising any purchase option.
Liabilities arising from leasing contracts are recognised under financial liabilities.
These assets are classified in the relevant categories under properties, plant and equipment and are depreciated over the lower between the contract term and the useful life of the asset in question.
Lease contracts in which lessor substantially keeps all the risks and benefits linked to assets ownership are classified as operating leases and the relevant costs are recognised under income statement for the entire duration of contract term.
6.5 Borrowings
Borrowings resulting from assets purchase, development or production are capitalised. In case of assets which do not justify capitalisation, the relevant costs are recognised under income statement in the year in which they are incurred.
6.6 Impairment
The carrying value of intangible assets, investment property and property, plant and machinery is subject to an impairment test whenever it is believed that it may have decreased.
Impairment tests are carried out at least once a year on goodwill, other intangible assets with an indefinite useful life and on other assets that are not available for use, and are performed by comparing the carrying value with whichever is higher between the fair value less the sales cost and the value in use of the asset.
If no binding sales agreement or an active market for an asset exist, the fair value is calculated on the basis of the best information available as to the amount the Group would obtain at closing from the disposal of an asset in a free transaction between informed and willing parties, having deducted the costs of disposal .
The value in use of an asset is determined by discounting the cash flows expected from its use, subjecting forecasts of the relevant financial income on reasonable and sustainable assumptions used by the management to best represent the economic conditions foreseen for the remainder of the life of the asset, giving more importance to external indicators.
Pre-tax discounting reflects current market estimates of the time value of money and the specific risks connected to the asset.
The valuation is carried out by individual asset or by the smallest Cash Generating Unit that generates cash flows from assets use.
Should the value resulting from the impairment test be lower than cost, the loss is recognised as a reduction in the value of the asset and under the cost items in income statement.
If during subsequent financial years, when the impairment test is repeated, the reasons for the writedown no longer exist, the value of the asset, excluding goodwill, is reinstated to take into account the new recoverable value, which should never exceed the value that would have been stated, had no loss in value been recognised.
6.7 Investments in joint ventures and associated companies
This item refers to investments in companies under joint control, in which any financial and strategically relevant decisions require the agreement of all the parties sharing control. This item also includes investments in companies in which the Group has a significant influence, i.e. where the Group has the power to take part in the definition of the company’s financial and management policies without having control or joint control thereupon.
Investments in joint ventures and associated companies are initially recognised at cost and subsequently adjusted as a result of any changes in the interest the Group holds in the relevant equity.
The Group’s share of any profits and losses of such companies is recognised under income statement.
The relevant book value also contains any excess cost paid and attributable to goodwill.
The risk resulting from any losses exceeding net equity is recognised as a liability to the extent to which the Group is legally bound or held liable or has made payments on behalf of the company in question.
6.8 Inventory
Inventory is valued at the lower between the cost and the net realisable value. Inventory cost includes purchase costs, transformation costs and other costs involved in bringing an item to its current location and condition, without taking financial charges into consideration.
The calculation of cost is based on the weighted average cost of raw and consumable materials and of finished products purchased for sale, while the FIFO method is used for finished products.
The valuation of goods under construction and semi-finished products and work in progress to order is based on the cost of the materials and other costs incurred, taking into account the progress of the production process.
The presumed net value for raw, subsidiary and consumption materials corresponds to the cost of their replacement, while for semi-finished and finished products it corresponds to the standard estimated sales price net of estimated cost to completion and sales cost respectively.
6.9 Financial assets
Financial assets are initially recognised at fair value increased by accessory purchase charges. Purchase and sale of financial assets are recognised upon trading date, which corresponds to the date in which the Group agreed to purchase the asset in question. After initial recognition, financial assets are posted according to the relevant classification, as outlined below:
Financial assets at fair value with adjustments recognised under income statement
In accordance with IAS 39, this category includes:
- financial assets/liabilities which the Group posted at fair value through profit and loss under income statement upon first recognition;
- financial assets/liabilities held for trading as:
- classified as held for trading, i.e. purchased or committed to for the purpose of gaining benefits from short term price fluctuations;
- part of a portfolio of specific financial instruments that are managed en bloc and for which there is recent, reliable evidence of short term benefits.
In an active market, the fair value of these instruments is calculated by referring to the market value at closing, while financial evaluation techniques are used in case of no active market. Profit and losses deriving from fair value evaluation of assets held for trading are recognised under income statement.
Held-to-maturity investments
Financial assets the Company intends to hold in its portfolio to maturity and which have fixed or determinable payments with fixed maturity are classified as “held-to-maturity investments”.
Long-term financial investments that are held to their maturity, such as bonds, are valued, after their initial recognition by using the amortised cost method based on effective interest rates, i.e. the rates that will apply to future payments or returns estimated for the entire life of the financial instrument.
Calculation of amortised cost also considers any discounts or premiums that will be applied over the period of time to maturity.
Financial assets that the Group decides to keep in its portfolio for an indefinite period do not come into this category.
Loans and receivables
IAS 39 defines these financial assets as having fixed or determinable payments that are not listed on an active market, with the exception of those designated as being held for trading or as being available for sale. These assets are recognised at amortised cost using the discounting method. Profits and losses are recognised under income statement when loans and receivables are cancelled out or in case of impairment, as well as through amortisation.
The Group includes trade receivables, both financial and other receivables into this category. These are due within 12 months and are therefore recognised at nominal value (net of any writedowns). This category also includes item “Cash and other cash equivalents”.
Financial assets available-for-sale
Financial assets available-for-sale include all assets which do not fall into any of the categories mentioned above.
After being initially measured at cost, financial assets available-for-sale are measured at fair value. The profits and losses from valuations are recognised in a separate item under shareholders’ equity for as long as the assets are held in the portfolio and for as long as no impairment is identified.
In the case of shares widely traded on regulated markets, fair value is determined by referring to the listing reached at the end of the trading day corresponding to the closing date.
For investments where an active market does not exist, fair value is determined by valuations based on recent trading prices between independent parties, or on the basis of the current market value of a substantially similar financial instrument or on the analysis of discounted cash flows or option pricing models.
Financial assets available-for-sale also include investments in other companies, which are valued at cost since the fair value cannot be reliably calculated.
6.10 Trade receivables and other receivables
Trade receivables and other receivables are initially recognised at cost, i.e. at the fair value of the price collected upon completion of the relevant transaction. Receivables are recognised at current values when the relevant financial impact linked to the expected collection time span is significant and the collection date can be reliably estimated.
Receivables are subsequently recognised in the financial statements at their estimated realisable value.
6.11 Treasury shares
Treasury shares are booked in a separate reserve under shareholders’ equity.
No profit or loss is recognised under income statement for the purchase, sale, issue, cancellation or any other transaction involving treasury shares.
6.12 Cash and cash equivalents
The cash and cash equivalents item includes liquidity and financial investments falling due within three months and which entail only a minimal risk of variation in their face value.
They are recognised at face value.
6.13 Financial liabilities
Financial liabilities include financial payables, derivative instruments, payables linked to financial leasing contracts and trade payables. All financial liabilities, other than derivative financial instruments, are initially valued at fair value (as increased by any transaction costs) and are subsequently valued at amortised cost by using the interest rate method.
Financial instruments including bonds convertible into Arnoldo Mondadori Editore SpA shares are recognised by separating the liability component from the option component. The liability component is recognised under financial liabilities by applying the amortised cost method, while the option value, calculated as the difference between the value of the liability component and the nominal value of the financial instrument issued, is recognised under reserve in shareholders’ equity.
Financial liabilities hedged by derivative instruments against the risk of changes in value (fair value hedges), are valued at fair value, in accordance with IAS 39 hedge accounting. Profits and losses resulting from subsequent variations in fair value are recognised under income statement. Any changes linked to the effective hedge portion are compensated for by value adjustments of the relevant derivative instruments.
Financial liabilities hedged by derivative instruments against the risk of changes in cash flow (cash flow hedges), are valued at amortised cost in compliance with IAS 39 - hedge accounting.
6.14 Derecognition of financial assets and liabilities
A financial asset or, where applicable, part of a financial asset or parts of a group of similar financial assets, is derecognised when:
- the right to receive cash flows from the asset has been extinguished;
- the Group still has the right to receive cash flows from the asset but has taken on a contractual obligation to transfer the entire cash flow immediately to a third party;
- the Group has transferred the right to receive cash flows from an asset and has transferred substantially all the risks and benefits deriving from the ownership of the financial asset or has transferred control of the financial asset.
A financial asset is derecognised when the underlying obligation has been discharged, cancelled or expired.
6.15 Impairment of financial assets
Upon closing, the Group carries out an impairment test in order to determine whether a financial asset or group of financial assets decreased in value.
Financial assets valued at amortised cost
If there is objective evidence of a reduction in the value of loans and receivables, the loss amount is recognised under income statement and is calculated as the difference between the asset book value and the current value of the estimated cash flows discounted based on the interest rate used initially for the asset.
If, in a subsequent period, the value loss amount decreases and such reduction can be objectively attributed to an event that has occurred after recognition of impairment , the previously recognised loss of value is reversed up to the amount the asset would have had, taking amortisation into account, at the date of the reversal.
Financial assets available-for-sale
When any financial asset available for sale is subject to impairment, the accumulated value loss is recognised under the income statement. Value reversals relative to equity instruments classified as available for sale are not recognised under income statement. Value reversals relative to debt instruments are recognised under income statement, if the increase in fair value of the instrument can be objectively attributed to an event that has occurred after recognition of impairment in the income statement.
Financial assets valued at cost
If there is objective evidence of a reduction in the value of an unlisted equity instrument which was not recognised at fair value, because its fair value could not be reliably measured, or of a derivative instrument linked to and regulated by delivery of such unlisted equity instrument, the value loss amount is measured as the difference between the carrying value of the asset and the current value of the expected future cash flows discounted based on the current market performance rate relative to any similar financial asset.
6.16 Derivative financial instruments
Derivative financial instruments are initially recognised at fair value at the date they are stipulated. When a hedge operation is entered into, the Group designates and formally documents the hedge relationship for hedge accounting purposes and its objectives for risk and strategy management purposes. The documentation includes the identification of the hedging instrument, the object or transaction subject to hedge, the nature of the risk and the criteria adopted by the Group to valuate hedging effectiveness in compensating exposure to fair value fluctuations of the object hedged or cash flows correlated to the risk hedged.
It is assumed that such hedges are sufficiently effective to compensate for the exposure of the object hedged against fair value fluctuations or cash flows correlated to the risk hedged. The valuation of the effectiveness of such hedges is carried out on an ongoing basis over the years of application.
Operations that satisfy hedge accounting criteria are accounted for as follows.
Fair value hedge
If a derivative financial instrument is designated as a hedge for the exposure to variations in the fair value of an asset or liability attributable to a particular risk, the profit or loss deriving from subsequent variations in the fair value of the hedge instrument is recognised under income statement. The profit or loss deriving from the adjustment of the fair value of the item hedged, to the extent attributable to the risk hedged, modifies the carrying value of the item and is recognised under income statement.
As for the fair value hedge of items recognised at amortised cost, the adjustment of the carrying value is amortised under income statement throughout the period before maturity. Any adjustments to the carrying value of any hedged financial instrument for which the interest rate method is applied, are amortised under income statement.
The amortisation may begin as soon as an adjustment is identified but it may not be extended after the date in which the object hedged ceases to be subject to fair value adjustments attributable to the hedging risk . If the hedged object is cancelled, the fair value that has not been amortised is immediately recognised under income statement.
Cash flow hedge
If a derivative financial instrument is designated as a hedging instrument for exposure to cash flow variations of an asset or liability included in the financial statements or of a highly probable transaction, the effective portion of profit or loss deriving from fair value adjustment of the derivative instrument is recognised in a special reserve under shareholders’ equity. The accumulated profit or loss is written off from the equity reserve and recognised under income statement, when the results of the transaction subject to hedge are recognised under income statement.
Profit and loss associated with the ineffective part of a hedge are recognised under income statement. When a hedging instrument is terminated, but the transaction subject to hedge has not yet been carried out, the accumulated profit and loss are kept in the reserve under shareholders’ equity and will be reclassified under income statement upon completion of the transaction. Should the transaction subject to hedge be considered as no longer probable, any unrealised profit and loss posted under the relevant shareholders’ equity reserve are recognised under income statement.
When hedge accounting is not applicable, profit and loss deriving from the fair value valuation of the derivative financial instrument are recognised under income statement.
6.17 Provisions
Provisions established to cover liabilities that have been clearly identified, are certain or probable but whose amount or date of occurrence cannot be foreseen when the financial statements are prepared, are recognised when a legal or implicit obligation can be assumed, which refers to past events and when it is also assumed that such obligation implies expenses that can be reliably measured.
Provisions are valued at fair value based on each individual liability item. When the financial impact linked to the assumed time span for the outlay is relevant and the payment dates can be reliably foreseen, provisions include such financial component, which is recognised in financial income (expense) under income statement
6.18 Employee termination benefits
Benefits due to employees upon termination of the relevant labour contract include:
- defined contribution plans, represented by the sums accrued as of 1 January 2007;
- defined benefit plans, represented by the severance indemnity (TFR) fund, attributable to companies with less than 50 employees and by the severance indemnity (TFR) fund accrued until 31 December 2006 for the other Group companies.
In the defined contribution plans, the entity’s legal or implicit obligation is limited to the amount of contributions to pay; hence, the actuarial and investment risks fall upon the employee. In the defined benefit plans, the entity’s obligation consists in granting and ensuring the agreed benefits to employees; hence, the actuarial and investment risks fall upon the entity.
Employee termination benefits for entities with more than 50 employees are calculated by applying actuarial criteria to the fund provision accrued as at 31 December 2006, taking into account both demographic assumptions (including mortality rates and employee turnover ) and financial assumptions (discounting reflecting the time value of money and the inflation rate).
Employee termination benefits for companies with less than 50 employees are calculated by applying the same actuarial criteria, taking also into account salary levels and future compensation.
The amount recognised as a liability for defined benefit plans is represented by the current liability value as at closing, net of the current value of plan assets, if any. This liability item recognised under income statement includes the following:
- social security costs relative to current labour;
- cost of interest;
- actuarial gains or losses;
- the expected return from any plan assets.
The Group does not apply the so-called “corridor” method and therefore recognises all actuarial gains and losses directly under income statement.
The amounts accrued in favour of employees during the year and any actuarial gains or losses are recognised under “Costs for personnel”, while the relevant financial component, which represents the cost the company would have to incur, if it were to seek a loan on the market for the same amount , is recognised under “Financial income (expense)”.
The termination indemnity for agents is also determined on an actuarial basis. The amounts accrued in favour of agents during the year, which becomes payable upon termination of the labour contract only when certain conditions occur, is recognised under “Other expenses (income ).
6.19 Stock options
The Group grants additional benefits to directors and managers with strategically relevant functions for the attainment of the company’s results, through the provision of equity-settled stock option plans.
Stock options are measured at fair value upon delivery. Fair value is determined on the basis of a binomial model and subject to the rules of the individual plans.
The cost of these benefits is recognised under personnel costs during the period of service consistently with the relevant vesting period starting from the date of delivery with a counteritem in “Reserve for stock options” under shareholders’ equity.
At the end of each financial year, the previously calculated fair value of every option is neither adjusted nor updated. However, the estimate of the number of options expected to be exercised to maturity (and therefore the number of employees having the right to exercise these options) is consequently updated at closing . Any change in this estimate is recognised in “Reserve for stock options” and in personnel costs under income statement.
When an option is exercised, the part of the “Reserve for stock options” relating to exercised options is reclassified under “Share premium reserve” while the part of the “Reserve for stock options” relating to cancelled or expired options is reclassified under “Other reserves”.
The dilution effect of options that have not yet been exercised is reflected in the calculation of diluted earnings per share.
The Mondadori Group implemented the provisions contained in IFRS 2 for all stock option plans granted after 7 November 2002.
6.20 Recognition of revenues and costs
Revenues from the sale of goods are recognised net of agency and commercial discounts, allowances and returns when it is probable that the relevant economic benefits will flow to the Group and the relevant revenue amount may be reliably determined.
Revenues from the sale of magazines and advertising spaces are recognised on the basis of the relevant date of publication .
Revenues from barter transactions are recognised at fair value when the barter deal involves dissimilar services . Dissimilar services comprise barter deals for goods and advertising, when they refer to different communications means or product positioning.
Revenues from services are recognised based on the relevant state of completion, when it is probable that the economic benefits arising from the sale flow to the Group and when the revenue amount may be reliably calculated.
Revenues from interest are recognised on an accrual basis by applying the interest method; royalties are recognised on an accrual basis and subject to the conditions of the relevant agreements; dividends are recognised when the shareholder is acknowledged the right to payment .
Costs are recognised based on similar criteria as revenues and on an accrual basis.
6.21 Current, pre-paid and deferred taxes
Current taxes are calculated on the basis of a taxable income estimate and in accordance with the laws applicable in the individual countries in which each individual consolidated company has its registered offices.
Deferred tax assets and liabilities are calculated on all the temporary differences between the tax base of assets and liabilities and the relevant book values in the consolidated financial statements, with the exception of the following:
- temporary taxable differences deriving from the initial recognition of goodwill;
- temporary differences resulting from the initial recognition of an asset or a liability in a transaction which does not imply business combination and which does not have any impact either on the result or the taxable income on the transaction date;
- temporary differences relative to the value of investments in subsidiary, associated and jointly-controlled companies when:
- the Group is in a position to control the timing for the reversal of temporary taxable differences and it is probable that such differences do not reverse in the foreseeable future;
- it is not probable that deductible temporary differences reverse in the foreseeable future and that taxable income is available to cover such temporary differences .
The carrying value of deferred tax assets is reviewed at closing and is reduced if it is no longer probable that sufficient taxable income is available in the future to cover all or part of these assets.
Deferred tax assets and liabilities are calculated on the basis of the tax rates that are expected to apply in the period in which assets are realised and liabilities are settled, considering the then applicable tax rates or the tax rates essentially used at closing.
Deferred tax assets and liabilities relating to items directly recognised under equity are recognised under Shareholders’ equity.
6.22 Transactions denominated in foreign currencies
Revenues and costs deriving from transactions denominated in foreign currencies are posted in the relevant currency at the then applicable exchange rate on the transaction date.
Monetary assets and liabilities denominated in foreign currencies are converted at the exchange rate ruling at closing and any exchange differences are recognised under income statement, except for the differences deriving from loans denominated in foreign currency taken out to pay for the acquisition of an interest in a foreign company. In the latter case, such differences are recognised under Shareholders’ equity until disposal.
Non-monetary items valued at cost in a foreign currency are converted using the exchange rates ruling on the relevant transaction date. Non-monetary items recognised at fair value in a foreign currency are converted using the exchange rates ruling on the fair value calculation date.
6.23 Grants and contributions
Grants and contributions are recognised if there is a reasonable certainty that they will be received and if all the conditions referring to them are satisfied. When grants refer to cost items, they are recognised as revenues and systematically distributed over the years so as to reflect the cost proportion they are intended to offset. When grants refer to assets, the relevant fair value is deferred in long-term liabilities and is recognised in equal amounts under income statement over the asset useful life .
6.24 Earnings per share
Earnings per share refer to the Group’s net profit divided by the weighted average number of outstanding shares in the period of reference.
For the purpose of calculating diluted earnings per share, the weighted average number of outstanding shares is adjusted on the assumption of converting shares with a dilution effect .
6.25 Assets and liabilities held for sale and discontinued operations
Non-current assets and groups of assets and liabilities, whose book value is mainly expected to be recovered through disposal instead of continuous use, are recognised separately from other assets and liabilities under the Group’s consolidated balance sheet. Such assets and liabilities are classified as “assets and liabilities held for sale” and are valued at the lower between their book value and fair value less probable costs of disposal. Gains and losses, net of the related tax effect, resulting from the valuation or disposal of such assets or liabilities are recognised in a separate item under income statement.
Should the Group keep under transferred assets and liabilities a relevant shareholding IFRS 5 is not applicable as a result of the interest held in the associated company.
6.26 Accounting standards and interpretations adopted by the European Union with effect from 1 January 2010 and applied by the Mondadori Group
IFRS 3R – Business combinations
The new provisions of IFRS 3R establish, among others, that accessory costs related to business combination transactions, along with any contingent consideration, are recognised under income statement, as well as the entire amount of goodwill deriving from such transaction, including also the part attributable to minority interests (full goodwill method). In addition, the new provisions modify the current recognition method of acquisitions in subsequent phases, envisaging that the difference between the fair value calculated upon the acquisition date of the previously held assets and the relevant book value is recognised under income statement.
IAS 27R – Group’s consolidated and Parent Company’s financial statements
The new version of IAS 27R establishes, among others, that the effects deriving from the acquisition (disposal) of interests subsequently to gaining control (without loss of control) are accounted for as equity.
In addition, the new provisions establish that should a change in a parent’s ownership interest in a subsidiary result in loss of control, the remaining interest held is adjusted to the relevant fair value and the revaluation (writedown) contributes to the gain (loss) deriving from the transfer transaction.
Lastly, the changes to IAS 27 require that all losses attributable to minority shareholders are allocated in proportion to their ownership interests, even when these exceed their capital share. The new rules become effective as of 1 January 2010.
IFRS 5 – Non-current assets held for sale and discontinued operations
Should a company have envisaged a divestment plan according to which it is expected that it looses control in any subsidiary, such subsidiary assets and liabilities shall be reclassified as assets held for sale, even if after transfer completion, the company still holds a minority interest in the same subsidiary. This amendment has become effective as of 1 January 2010.
IFRS 8 – Operating segments
This amendment, which came into effect on 1 January 2010, requires that companies provide disclosures about the total assets value for all segments of operation, if such value is regularly reviewed by the entity’s chief operating decision maker. Such disclosure was previously required also when such condition was not applicable.
IAS 36 – Impairment of assets
This amendment, which came into force on 1 January 2010, requires that every operating unit or group of operating units including goodwill for the purpose of the impairment test do not exceed the dimensions of an operating segment as defined in paragraph 5 of IFRS 8, before the aggregation allowed by paragraph 12 of IFRS 8 on the basis of similar economic characteristics or other similar elements .
6.27 New standards and interpretations adopted by the European Union but not yet effective and applied by the Mondadori Group
As required by IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, the possible impact of new standards or interpretations on the financial statements in their first year of application are listed below.
On 6 May 2010, IASB issued the latest series of Improvements to IFRS relating to the 2008-2010 period, which contain minor changes to the accounting standards in force.
The changes that may have an effect on the Group refer to:
- the fair value valuation of minority interests on the occasion of business combinations : Currently, the new IFRS 3R envisages the possibility of measuring all minority interest components either at fair value or as a proportion of the share of the relevant identifiable net assets of the minority interest. This option only applies to those components that represent instruments that allocate minority shareholders rights which are equivalent to ordinary shares and in particular the right to obtain pro-rata shares in the net assets in case of liquidation. All other components relating to minority interests (such as preference shares or warrants issued by the acquired company in favour of third parties) are necessarily measured at fair value, unless IFRS regulations provide another form of valuation criteria;
- stock option plans acquired or voluntarily replaced following to business combination: The document explains that stock option plans acquired as a result of a business combination shall be (re)valued as at acquisition date pursuant to IFRS 2. In addition, IFRS 2 currently requires that the valuation of stock option plans acquired as a result of business combination is allocated including the acquisition cost and the cost of future services. This rule applies to all allocations regardless of the fact that they are or not voluntarily replaced as a result of the business combination;
- significant events and transactions included in interim reports pursuant to IAS 34: it is emphasised that disclosures about significant events and transactions included in interim reports shall be updated and reflected in the corresponding disclosures contained in annual reports; in addition, it should also be specified based on what circumstances it is compulsory to provide disclosures about financial instruments and the relevant fair value in interim reports.
Amendments are expected to come into force as of 1 January 2011.