NWG Annual Report 2019 - EN NWG Annual Report 2019 - EN | Page 76

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, liabi-
lities, income and expenses, have to be made. The areas
where estimates and assessments are of material signi-
ficance 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 recognized
when the asset’s recoverable amount is less than the
carrying amount. The recoverable amount is deter-
mined 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 are tested for impairment
once a year or if there are indications of impairment.
To test these assets for impairment, the assets is
allocated to operating segments and their values in
use are calculated for each segment. The necessary
calculations require that management estimate the
expected future cash flow and establish a discount
rate, see note 8.
Evaluation of the estimates which, if they were to
be changed, could have a significant impact on the fair
values of assets and would therefore require recog-
nition of impairment losses, has been performed. The
estimates relate to factors such as expected selling
prices for the products and discount rate. A description
of the assumptions made concerning impairment
tests, including sensitivity analysis, is given in note 8.
076 // ANNUAL REPORT
Valuation of inventories
The value is dependent on management’s assessments
in respect of the calculation of the net realizable value of
the stock. These assessments may lead to impairment
losses on the stock.
Inventories comprise clothes, gift products and
accessories held for resale, and are measured, by
applying the FIFO method, at the lower of cost and
net realizable 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 realizable value will be
lower than the cost is low, since 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
26 % 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 realizable value will be lower than the cost.
In the Gifts & Home Furnishings operating
segment most of the volume consists of classic and
best-selling products, many of which have a product
cycle of more than 20 years. This limits the risk that
the net realizable value will be lower than the cost.
Deferred taxes
Deferred taxes are recognized for temporary diffe-
rences arising between the carrying amounts and tax
values of assets and liabilities as well as for unused loss
carry-forwards. Deferred tax assets are recognized
only if it is likely that these can be used to offset future
profits. In the event that actual outcome differs from
the estimates made or if management adjusts these
estimates in future, the value of deferred tax assets
could change. See note 15 for detailed information.