Groupe Renault - 2020 Universal Registration Document

361 GROUPE RENAULT I UNIVERSAL REGISTRATION DOCUMENT 2020 04 CONSOLIDATED FINANCIAL STATEMENTS GROUPE RENAULT GROUPE RENAULT: A COMPANY THAT ACTS RESPONSIBLY CORPORATE GOVERNANCE FINANCIAL STATEMENTS RENAULT AND ITS SHAREHOLDERS ANNUAL GENERAL MEETING OF RENAULT ON APRIL 23, 2021 ADDITIONAL INFORMATION Acquisitions of additional investments concerning non-controlling interests in companies controlled by the Group are treated as equity transactions. The positive or negative difference between the cost of acquiring shares and the book value of the non-controlling interests acquired is recorded in shareholders’ equity. Research and development expenses and 2 - K - other intangible assets RESEARCH AND DEVELOPMENT EXPENSES Development expenses incurred between the decision to begin development and implement production facilities for a new vehicle or component ( e.g. engine or gearbox) and the subsequent approval of the design for mass production are capitalized as intangible assets. They are amortized on a straight-line basis from the date of approval for production, over the expected market life of the vehicle or part, which is initially no longer than seven years. Market lives are regularly reviewed and subsequently adjusted if there is a significant difference from the initial estimate. Capitalized development expenses mainly comprise the cost of prototypes, the cost of studies invoiced by external firms, the cost of personnel assigned to the project and a share of overheads dedicated exclusively to development activities. Borrowing costs directly attributable to the development of a project requiring at least 12 months of preparation before commissioning are included in the gross value of the asset, which is a “qualifying asset”. The capitalization rate for borrowing costs is limited such that capitalized borrowing costs do not exceed the total borrowing costs borne during the year. When a project is financed through a specific borrowing, the capitalization rate is equal to the interest rate on the borrowing. Expenses incurred before the decision to begin product development are recorded as costs in the period they are incurred, in the same way as research expenses. Expenses incurred after the start of mass production are treated as production costs. OTHER INTANGIBLE ASSETS Other intangible assets comprise patents, leasehold rights, intangible business assets, licenses, software, brands and similar rights purchased by the Group. When they have a finite useful life, patents, leasehold rights, licenses, brands and similar rights purchased are amortized on a straight-line basis over the period of protection stipulated by the contract or the law, or over the useful life if shorter. Intangible business assets and software are amortized over their useful life. The useful life of intangible assets is generally between three and five years. Intangible assets with an indefinite useful life, such as the LADA brand (note 11-C), are subjected to an impairment test at least once a year and when there is any indication of impairment. Property, plant and equipment and 2 - L - right-of-use assets The gross value of property, plant and equipment corresponds to historical acquisition or production cost. Design and preparation expenses are included in the asset’s production cost. method as for intangible assets. When a project is financed through a specific borrowing, the capitalization rate is equal to the interest rate on the borrowing. The production cost for property, plant and equipment also includes financing costs borne during the construction phase, under the same Investment subsidies received are deducted from the gross value of the assets concerned. Subsequent expenses for property, plant and equipment, except those incurred to increase productivity or prolong the life of an asset, are charged to expenses as incurred. Assets leased to customers include vehicles leased for more than one year from a Group finance company with a buyback commitment by the Group, and vehicles sold under an agreement including a clause for buyback after a minimum one year of use. Assets leased to customers also include batteries leased to electric vehicle users by Group finance companies (note 2-G). Right-of-use assets The Group is a party to leases of real estate property (land, concessions, warehouses, offices, etc. ) and movable property (IT and operating equipment, transport equipment). A contract contains a lease if it gives the lessee the right to use an identified asset for a specified period of time in exchange for payment. At the contract’s commencement date, a lessee recognizes an asset related to the right of use, and a financial liability that represents the lease obligation. The right-of-use asset is amortized over the term of the lease. The lease liability is initially recognized at the present value of lease payments over the expected term of the lease. The discount is unwound using the implicit interest rate of the lease agreement if it can be readily determined, or at the incremental borrowing rate otherwise. As lessee, the Group uses the incremental borrowing rate, calculated for each monetary zone as the risk-free rate applicable in the zone, plus the Group’s risk premium for the local currency. In the income statement, amortization of the right-of-use asset is recorded in the operating income (operating margin in the information by operating segment) and a financial expense corresponding to the interest on the lease liability is recorded in financial income and expenses, replacing the lease payments previously charged to the operating margin. The tax impact of this consolidation adjustment is recognized via deferred taxes. In the cash flow statement, cash flows from operating activities are impacted by interest expenses paid, and cash flows from financing activities are impacted by the reimbursed lease liability. Lease payments on short-term leases (12 months or less) and leases of low-value assets are treated as operating expenses and amortized on a straight-line basis. The term of the lease is the non-cancellable period of a lease contract during which the lessee has the right to use the leased asset, extended by any renewal options the Group is reasonably certain to exercise. For French commercial leases, the lease term is generally nine years. Last term estimation and consideration of extension and termination options is conducted with the help of the Real Estate department, considering the types of site and their development plans.