New Wave Group AB Annual_report_2018_EN_HQ | Page 77

NWG // FINANCIAL INFORMATION //
THE GROUP
Note 2 - Key sources of uncertainty
in material estimates, assumptions and
assessments
To prepare financial statements in accordance with
applied accounting policies, certain estimates and
assessments which affect the content of the financial
statements, i. e. the carrying amounts of assets,
liabilities, income and expenses, have to be made.
The 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 test of intangible fixed assets
Intangible fixed assets, except those which have inde-
finite useful lives, are amortized 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, which is the higher of
the fair value of the asset less selling expenses and
its value in use, is determined. 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 analysis,
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 operating segments 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
operating segments. A discount rate also needs
to be established for the purpose of discounting
the cash flow, see Note 8. The Group has reviewed
the 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 and
discount rates. A description of the assumptions
made concerning impairment tests, including sensi-
tivity analyses, is given in Note 8.
Valuation of inventories
The value is dependent on management’s assess-
ments 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 FIFO method, 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 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
27 % 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 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 reali-
sable value will be lower than the cost.
ANNUAL REPORT // 077