Page 35 - Hoftex Annual Report 2018 EN

(3) Consolidation principles
Letter to Shareholders Supervisory Board Report Group Management Report Consolidated Financial Statements Annexes
For first-time consolidations before 1 January 2010, capital is consolidated using the book value method pursuant to Art. 66(3) sentence 4 of the EGHGB. First-time consolidations after this date use the revaluation method only, as outlined in Section 301 HGB as amended by the German Accounting Law Modernisation Act (Bilanzrechtsmodernisierungsgesetz, or BilMoG). According to this method, the subsidiary’s equity at the time of initial consolidation is recorded as the fair value of all assets, liabili- ties, accruals, deferrals and extraordinary items to be included in the consolidated annual financial statements. Any excess of acquisition cost over the value of the equity is capitalised as goodwill.
The first-time consolidation of the Italian subsidiary Resintex Industriale S.r.l. on 30 September 2018 resulted in an asset-side difference of EUR 566 thousand, which will be capitalised as goodwill and amortised over a period of five years. The useful life is chiefly defined by short-term contracts with customers.
If the value of equity exceeds the purchase price, it must be recorded as a separate line item below equity. Negative goodwill from first-time consolidations before 1 January 2010 was released to income pursuant to Section 309(2) HGB.
The results from subsidiaries that are bought or sold during the year are recognised in the consoli- dated income statements from the actual date of acquisition or up until the actual date of sale. Where necessary, the annual financial statements of new subsidiaries will be adjusted to conform to the accounting policies used in the consolidated annual financial statements.
All receivables and payables between companies included in consolidation are eliminated.
Interim results, intragroup sales, expenses and income, receivables and payables between consoli- dated companies as well as intragroup provisions are eliminated.
(4) Accounting policies
Intangible assets, provided they have been acquired in cash, are recognised at cost and amortised on a straight-line basis over their estimated useful life. As provided in Section 248(2) HGB, companies may exercise the option to capitalise internally generated intangible assets at cost in line with Section 255(3) sentences 1 and 2, provided these assets are not brands, newspaper mastheads, publishing rights, customer lists or similar intangible fixed assets. The Group did not exercise this option. The intangible fixed asset item relates in particular to software and licences purchased from third parties. These are written down from the date of acquisition using straight-line amortisation over a period of 5 years.
Tangible assets are recognised at cost less straight-line depreciation provided the assets are subject to wear and tear. The cost of tangible assets produced in-house includes directly allocable expenses and a reasonable share of necessary materials and production overheads including depreciation, pro- vided it is production-related. Interest on borrowed capital is not included in the production cost.
Extraordinary depreciation charges are recognised for impairment that exceeds scheduled deprecia- tion and is likely to be permanent. When the reasons for the impairment no longer apply, the write- downs are reversed.
As a rule, depreciation and amortisation throughout the Group are recognised on a straight-line basis over the expected useful life of the asset in question.
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Long-term financial assets are generally carried at cost or, in the event of permanent value impair- ment, at the lower of cost and fair value on the balance sheet date.