Intangible assets are recognized only if they can be separately identified, if it is probable that they will generate future economic benefits and if their cost can be measured reliably.
Intangible assets with a finite useful life are valued at purchase or production cost net of amortization and accumulated impairment.
Intangible assets are initially recognized at purchase or production cost. Purchase cost is represented by the fair value of the means of payment used to purchase the asset and any additional direct cost incurred for preparing the asset for use. The purchase cost is the equivalent price in cash as of the date of recognition and, where payment is deferred beyond normal terms of credit, the difference compared with the cash price is recognized as interest for the whole period of deferment.
Amortization is calculated on a straight-line basis following the expected useful life of the asset and starts when the asset is ready for use.
However, intangible assets with an indefinite useful life are not amortized but are constantly monitored for any lasting loss of value. It is mainly the newspaper and magazine titles and frequencies of the Espresso Group that are considered as intangible assets with an indefinite useful life.
The carrying value of intangible assets is maintained to the extent that there is evidence that this value can be recovered through use; to this end at least once a year an impairment test is carried out to check that the intangible asset is able to generate future cash flows.
Development costs are recognized as intangible assets when their cost can be measured reliably, when there is a reasonable assumption that the asset can be made available for use or for sale and that it is able to generate future benefits. Once a year or any time there are reasons which justify it, capitalized costs are subjected to an impairment test.
Research costs are charged to the income statement as and when they are incurred.
Trademarks and licenses, which are initially recognized at cost, are subsequently accounted for net of amortization and any impairment. The period of amortization is defined as the lower of the contractual duration for use of the license and the useful life of the asset.
Software licenses, including associated costs, are recognized at cost and are recorded net of accumulated amortization and any impairment.
Goodwill
In the event of the acquisition of companies, the identifiable assets, liabilities and potential liabilities acquired are recognized at their fair value on the acquisition date. The positive difference between the acquisition cost and the Group’s pro-rata share of the fair value of these assets and liabilities is classified as goodwill and is recorded in the balance sheet as an intangible asset. Any negative difference (“negative goodwill”) is however posted to the income statement at the moment of acquisition.
After initial recognition, goodwill is valued at cost less any accumulated impairment.
Goodwill always refers to identified income-producing assets, the ability of which to generate income and cash flows is constantly monitored for any impairment.
On the first adoption of IFRS, the Group opted not to apply IFRS 3 – Business combinations -retrospectively to acquisitions made prior to January 1 2004. As a result, the goodwill generated on acquisitions prior to the date of transition to IFRS was maintained at the previous value determined according to Italian Accounting Principles, subject to monitoring for any losses in value.
In relation to acquisitions/sales of holdings in companies that are already controlled, including extraordinary transactions involving a change of the stake in the capital of the said subsidiaries, IFRS 3 is not applicable because it only applies to transactions involving the acquisition of control by an acquiring entity of the business activity of the enterprise acquired. Thus, acquisitions of further shares in a holding, once control has been obtained, are not specifically regulated by IAS/IFRS.
In the absence of a specific Principle or Interpretation on the subject and with reference to the instructions contained in IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors), the Group decided to apply the accounting treatment given below, identifying two different types of transaction:
- acquisitions/sales of holdings in companies already controlled: in application of the parent entity extension method which considers minority shareholders as third parties, the Group:
- in the event of an acquisition pays third party shareholders an amount in cash or in new shares, thus eliminating their minority holdings and recognizing goodwill equal to the difference between the acquisition cost and the carrying value of the assets and liabilities acquired;
- in the event of a sale, the difference between the price of the sale and the corresponding carrying value in the consolidated balance sheet is recognized to the income statement;
- intercompany transfer of holdings in subsidiaries which cause a change in the percentage of ownership: the shares transferred remain recorded at historical cost and the whole gain or loss on the transfer is reversed out. The stakes of third party shareholders, who do not take part in the transaction directly, are adjusted to reflect the change in the percentage of their equity holding with an offsetting effect on the equity attributable to the shareholders of the Parent Company without recognizing any goodwill or causing any other effect on earnings or on total equity.