In accordance with IAS 38, purchased and internally generated intangible assets are recognised if it is probable that expected future benefits will flow from their use and if the cost of the asset can be measured reliably. They are measured at cost and, in the case of finite-lived assets, are amortised using the straight-line method over their useful lives of between three and 17 years.
Indefinite-lived intangible assets are tested regularly for im- pairment at least once a year, and written down to their recoverable amount if an impairment has occurred. Write- downs are reversed up to cost if the reasons for impairment have ceased to apply.
Amortisation and impairment losses are reported under the “Depreciation, amortisation and impairment losses” item of the income statement.
Development costs are expensed since the conditions for capitalisation set out in lAS 38 are not met. They relate primarily to the costs of developing collections and of estab- lishing new product lines.
They are depreciated using the straight-line method over the shorter of the expected useful life or the lease term. Payment obligations resulting from future lease payments are recog- nised at their present value in the financial liabilities item. The interest portion of lease liabilities is expensed over the lease term.
inVestMent seCurities
Shares in unconsolidated affiliates are measured at the low- er of cost or fair value. Their value is less than EUR 1 thousand. The 49% interests in the share capital of TT OFF SALE (NI) LTD. and of TT OFF SALE (Ireland) LTD. are recognised at amortised cost.
FinanCial instruMents
a) General
Financial instruments are accounted for in accordance with IAS 39 and — to the extent that this is relevant for the TOM TAILOR GROUP — broken down into the following categories: at fair value through profit or loss, held to maturity, available for sale, and loans and receivables.
Classification depends on the purpose for which the financial instruments were acquired.
Financial instruments include both non-derivative and deriv- ative assets and liabilities. Derivatives are used to hedge the fair value of balance sheet items or future cash flows.
iMpairMent oF assets
The TOM TAILOR Group tests intangible assets and property, plant and equipment for impairment as soon as there are indi- cations that the asset may be impaired. Impairment testing is performed by comparing the carrying amount with the recov- erable amount. Recoverable amount is defined as the higher of fair value less costs to sell and the present value of the estimated future cash flows from the value in use of the as- set. If the carrying amount exceeds the recoverable amount, the asset is written down by the difference. If the reasons for impairment recognised in previous years no longer apply, the impairment loss is reversed appropriately.
Annual impairment testing for goodwill from initial consolida- tion and other indefinite-lived intangible assets is performed at the level of the relevant cash-generating unit. Impairment testing is performed by comparing the carrying amount of the cash-generating unit, including the allocable goodwill or the carrying amounts of the other indefinite-lived intangible assets, with the recoverable amount. If the carrying amount exceeds the recoverable amount for the cash-generating unit, the resulting difference is charged to income as an im- pairment loss. Goodwill that has been written down is not re- versed in subsequent years.
FinanCe leases
In accordance with IAS 17, the lessee is considered to be the beneficial owner of the leased assets if substantially all the risks and rewards incidental to ownership of the assets are transferred to the lessee (finance lease). Assets classified as being subject to a finance lease are recognised at their fair value or, if lower, at the present value of the minimum lease payments.
In accordance with IAS 39, an assessment is made at regular intervals whether there is objective evidence that a financial asset or group of financial assets is impaired. Any impairment loss that has to be charged following impairment testing is recognised in profit or loss.
b) Derivatives and hedge accounting
In accordance with IAS 39, derivatives are initially recognised at their fair value on the date when the contract is entered into. Subsequent measurement is also performed using the fair value at the respective reporting date. In accordance with IAS 39, derivatives that are not part of a hedging relation- ship (hedge accounting) are required to be designated as at fair value through profit or loss. The method used to recog- nise gains or losses depends on whether the derivative con- cerned was classified as a hedge, as well as on the type of item hedged.
Derivatives may be embedded in other contracts (“host con- tracts”). If IAS 39.11 requires an embedded derivative to be separated, it is accounted for separately from the host con- tract and measured at fair value. Separable embedded deriv- atives are measured at a carrying amount of zero on initial recognition and are subsequently measured at fair value at the reporting date. Gains and losses from changes in fair val- ue of derivatives that do not form part of designated hedging relationships are recognised in full in profit or loss for the period.
Derivatives were used at the Group in the reporting period to hedge interest rate and exchange rate risks from the operat- ing business, and in particular to hedge forecast purchases of goods in foreign currencies. TOM TAILOR Holding AG hedges cash flows on the basis of predefined minimum hedge ratios. At the level of the Company, highly probable forecast trans- actions that are expected to occur within a 12-month period are hedged against exchange rate risks using rolling budget planning. These hedges are reported as cash flow hedges in accordance with IAS 39.
Trade date accounting is used for all purchases and sales of financial assets. Financial assets are generally initially recog- nised as from the point when the Group enters into the con- tract.
Financial instruments are recognised at amortised cost or fair value. Loans and receivables are subsequently measured at amortised cost using the effective interest rate method. Fi- nancial assets are derecognised when the contractual rights to payment from the investment have expired or been trans- ferred and the Group has transferred substantially all the risks and rewards incidental to ownership of the assets or, in the case of loans and receivables, on payment.
Fair value generally corresponds to the market or quoted market price. Where no active market exists, fair value is de- termined using accepted valuation techniques on the basis of the market inputs applicable on the reporting date in ques- tion plus confirmations from banks.
Financial assets and groups of assets are assessed for objec- tive evidence of impairment at each reporting date.
Financial assets are initially recognised at fair value, plus trans- action costs in the case of financial assets not at fair value through profit or loss.
Loans and receivables that are not held for trading, held-to- maturity financial investments and all financial assets for which there is no quoted market price in an active market and whose fair value cannot be reliably estimated are measured at amortised cost using the effective interest rate method, to the extent that they have a fixed maturity.
Financial assets with no fixed maturity are measured at cost.
The composite tax rate determined for deferred taxes in Ger- many was 30.7% (2013: 30.6%). This comprises the corporation tax rate of 15.0% (2013: 15.0%), the solidarity surcharge of 5.5% of the corporation tax rate (2013: 5.5%) and the average trade tax rate in the Group of 14.9% (2013: 14.8%). In the case of foreign companies, the relevant national tax rates are applied. Deferred taxes are recognised as non-current and are not dis- counted.
Changes in deferred taxes in the balance sheet result in principle in deferred tax expense/income. To the extent that accounting matters resulting in a change to deferred taxes are recognised directly in equity or in other comprehensive in- come, the corresponding change in deferred taxes is also rec- ognised directly in equity or in other comprehensive income.