Property, Plant and Equipment
Property, plant and equipment mainly contain computers, servers, office equipment, leasehold improvements and other fixtures.
Property, plant and equipment are stated at cost, excluding the costs of day-to-day servicing, less accumulated systematic depreciation and accumulated impairments. These costs comprise the costs for replacement parts which are recognized at the time they are incurred, providing they meet the recognition criteria. Systematic straight-line depreciation is based on the estimated useful lives of the assets. The MAGIX Group uses useful lives of between three and fourteen years for property, plant and equipment. The carrying amounts of property, plant and equipment are tested for impairment as soon as there is any indication that the carrying amount of an asset exceeds its recoverable amount.
Property, plant and equipment are derecognized upon disposal. The gain or loss on derecognition is determined as the difference between the net sales proceeds and the carrying amount and recognized in profit or loss in the period in which the item is derecognized.
The residual values of the assets, useful lives and depreciation methods are reviewed at the end of each fiscal year and adjusted if necessary.
Impairment of Non-Current Assets
The MAGIX Group assesses at each balance sheet date whether there is any indication that an asset may be impaired. If there is any indication of impairment or if an annual impairment test is required, the MAGIX Group estimates the recoverable amount of the asset. The recoverable amount of an asset is the higher of the asset’s or cash-generating unit’s fair value less costs to sell and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If the carrying amount of an asset exceeds its recoverable amount, the asset is described as impaired and written down to its recoverable amount. In order to estimate the value in use of the asset, estimated future cash flows are discounted to their net present value using a pre-tax discount rate which reflects current market expectations of the true value of money and the specific risks of the asset. Impairment losses attributable to continuing operations are recognized in the income statement in those expense categories consistent with the function of the impaired asset.
To determine whether or not the item is impaired, the goodwill acquired in a business combination must be allocated from the date of acquisition onwards to each of the cash-generating units of the MAGIX Group that are to benefit from the synergies of the combination. This is irrespective of whether other assets or liabilities of the Group have already been assigned to these units. The impairment loss is determined by calculating the recoverable amount of the cash-generating unit to which goodwill relates. If the recoverable amount of the cash-generating unit is lower than its carrying amount, an impairment loss is recorded.
The MAGIX Group determines the recoverable amount of its assets on the basis of cash-generating units that – with the exception of the business operations of Magix Development GmbH, m2any GmbH and Xara Group Ltd. originally acquired – correspond to the geographical segments. There were no indications of impairment for the cash-generating units. Growth rates of between 0,5% and 1,5% and discount rates of between 10% and 12% were used to calculate the liquidity surpluses resulting from the planning statements approved by the Supervisory Board of MAGIX AG. Sensitivity considerations showed that even increasing the discount rates used by 1, 3 and 5% would not lead to indications of impairment.
Financial Assets
Financial assets as defined by IAS 39 are broken down into financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. Initial recognition of financial assets is at fair value. The MAGIX Group decides on classification of its financial assets upon initial recognition and reviews allocation at the end of each fiscal year if permissible and appropriate.
As of September 30, 2007 and September 30, 2006 all financial investments recognized in the consolidated financial statements of the MAGIX Group are classified as loans and receivables (reported as other assets with a current and non-current portion) and as financial assets held to maturity (reported as other financial assets with a current and non-current portion up held to final maturity).
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not listed in an active market. These assets are measured at amortized cost using the effective interest method. A gain or loss is recognized in the net profit or loss for the period when the loans and receivables are derecognized or written down as well as through the amortization process.
Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as financial assets held to maturity if there is also an intention to hold the corresponding instruments to maturity. Financial assets held to maturity are measured at amortized cost using the effective interest method. Gains and losses are recorded with an effect on income.
The MAGIX Group tests financial assets for impairment at every balance sheet date. If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows (with the exception of future credit defaults) discounted at the original effective interest rate of the financial asset (i.e. the interest rate determined upon initial recognition). The carrying amount of the asset is reduced either directly or by using an allowance account. The amount of the loss is recognized in profit or loss. First, the MAGIX Group determines whether objective evidence exists for impairment of financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.