NOTE 2 MATERIAL ACCOUNTING ASSESSMENTS , ESTIMATES AND ASSUMPTIONS
THE GROUP
FINANCIAL INFORMATION
NOTE 2 MATERIAL ACCOUNTING ASSESSMENTS , ESTIMATES AND ASSUMPTIONS
In preparing financial statements the Board of Directors and Chief Executive Officer are required to make certain estimates and assessments which affect the content of the financial statements , i . e . the carrying amounts of assets , liabilities , income and expenses . Those areas where estimates and assessments are of material significance for the Group and which may affect the income statement and balance sheet if they are changed are described below .
IMPAIRMENT OF TANGIBLE FIXED ASSETS AND INTANGIBLE FIXED ASSETS Tangible fixed assets and intangible fixed assets , except those which have indefinite useful lives , are written off over the periods in which they will generate income , i . e . their useful lives . If there is an indication of impairment of an asset the recoverable amount is determined which is the higher of the fair value of the asset less selling expenses and its value in use . An impairment loss is recognised when the asset ’ s recoverable amount is less than the carrying amount . The recoverable amount is determined based on management ’ s estimate of future cash flows or other factors . The assumptions made for the purpose of impairment tests , including the associated sensitivity analyses , are explained in Note 8 and affect the estimated present value in all cases .
Goodwill , trademarks and other intangible assets with indefinite useful lives should be tested for impairment at least once a year or if there are indications of impairment . To test these assets for impairment , the assets need to be allocated to cash-generating units and their values in use need to be calculated . The necessary calculations require that management make an estimate of the expected future cash flow attributable to the defined cash-generating units . A discount rate also needs to be calculated for the purpose of discounting the cash flow , see Note 8 .
The Group has reviewed those estimates which , if they were to be changed , could have a significant impact on the fair values of assets and would therefore require recognition of impairment losses . The estimates relate to factors such as expected selling prices for the products , expected inflation levels and discount rates . A description of the assumptions made concerning impairment tests , including sensitivity analyses , is given in Note 8 . factory upon receipt of a purchase order from the customer , which significantly limits the risk that the net realisable value will be lower than the cost .
In the Gifts & Home Furnishings operating segment most of the volume consists of classic and big-selling products , many of which have a product cycle of more than 20 years . This limits the risk that the net realisable value will be lower than the cost .
MEASUREMENT OF FINACIAL INSTRUMENTS In cases where financial assets and liabilities have no fair values based on quoted prices , other measurement methods are used , such as discounted cash flow models . The main assessments refer to future cash flows , credit risks and volatility . For more information , see Note 16 , Financial instrument and financial management .
DEFERRED TAXES Deferred taxes are recognised for temporary differences arising between the carrying amounts and tax bases of assets and liabilities as well as for unused carry forwards . Deferred tax assets are recognised only if it is likely that these can be used to offset future profits . In the event that actual outcomes differ from the estimates made or if management adjusts these estimates in future , the value of deferred tax assets could change . See Note 15 Deferred tax assets for detailed information .
PROVISIONS FOR DOUBTFUL RECEIVABLES Trade receivables are initially carried at fair value and subsequently at the value at which they are expected to be realised . An estimate of doubtful receivables that is based on an objective assessment of all outstanding amounts is made continuously . Losses relating to doubtful receivables are recognised in the income statement under external expenses , see Note 17 , Financial instruments and financial risk management .
MEASUREMENT OF INVENTORIES The value is dependent on management ’ s assessments in respect of the calculation of the net realisable value of the stock . These assessments may lead to impairment losses on the stock .
Inventories comprise clothes , gift products and accessories held fore resale , and are stated , by applying the first in , first out principle , at the lower of cost and net realisable value at the balance sheet date . Internal profits arising from deliveries between companies in the Group are deducted . In the Corporate Promo operating segment the risk that the net realisable value will be lower than the cost is low , as a large portion of the collection comprises timeless basic products for which there is a demand season after season . In the Sports & Leisure operating segment about 25 % of sales are made through the promo sales channel . This product range mainly comprises basic products with limited fashion risk . For sales made through the retail sales channel orders are sent to the
68 | NWG 2017