Groupe Renault - 2020 Universal Registration Document

362 GROUPE RENAULT I UNIVERSAL REGISTRATION DOCUMENT 2020 Find out more at group.renault.com 04 CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS Improvements to leased buildings are depreciated over a duration that is equal to or shorter than the lease term used to estimate the lease liability (if the lessee has neither the intention nor the ability to use them for a longer period). When a lease contract contains a purchase option the Group is reasonably certain to exercise, it is in substance a purchase rather than a lease. The corresponding liability is considered as a financial liability under IFRS 9, and the asset as a tangible asset in compliance with IAS 16. Provisions for repairs required contractually by lessors are recognized at the start of the lease, with a corresponding tangible asset. Depreciation In the Automotive (excluding AVTOVAZ) segment and the Sales Financing segment, depreciation is calculated on a straight-line basis over the following estimated useful lives: Buildings (1) 15 to 30 years Specific tools 2 to 7 years Machinery and other tools (other than press lines) 5 to 15 years Press lines and stamping installations 20 to 30 years Other tangible assets (2) 4 to 6 years Buildings in use before 1987 are depreciated over a period of up to 40 years. (1) Except for leased batteries, which are depreciated over periods of 8 to 10 years (2) depending on the models. Useful lives are regularly reviewed, and accelerated depreciation is recorded when an asset’s useful life becomes shorter than the initially expected period of use, particularly when it is decided to withdraw a vehicle or component from the market. Depreciation for the AVTOVAZ segment is calculated on a straight-line basis over useful lives that may be longer than those used in other Groupe Renault companies. Impairment 2 - M - Impairment of fixed assets (other than leased assets) Fixed assets are subjected to impairment tests as soon as there is any indication of a loss of value, such as significant adverse changes in the market in which the Company operates, or changes affecting the circumstances and manner of use of the assets. For the Automotive (excluding AVTOVAZ) segment , impairment tests are carried out at two levels: AT THE LEVEL OF VEHICLE-SPECIFIC ASSETS (INCLUDING COMPONENTS) Vehicle-specific assets (including components) consist of capitalized development expenses and tools. Impairment tests are carried out by comparing the net book value of the assets with the recoverable value, calculated based on discounted future cash flows related to the vehicle and its components. These assets may be specific to the model and/or the country of destination. AT THE LEVEL OF CASH-GENERATING UNITS A cash-generating unit is defined as a coherent subset that generates largely independent cash flows. Other cash-generating units may represent an economic entity (plant or subsidiary) or the whole Automotive (excluding AVTOVAZ) segment. Net fixed assets related to cash-generating units notably include goodwill, specific assets and capacity assets, and components of working capital. For each of the two levels, impairment tests are carried out by comparing the net book value with the recoverable value. Recoverable value is defined as the higher of value in use or fair value less selling costs. Value in use is the present value of estimated future cash flows expected to arise from the use of an asset. Future cash flows derive from the business plan drawn up and validated by the Management, plus a terminal value based on discounted normative cash flows after application of a growth rate to infinity. They also include a bonus (“excess earnings”) paid to the Automotive segments for business referrals to the Sales Financing segment. The assumptions underlying the business plan include estimates of market developments in countries in which the Group operates and its share of those markets, changes in the sale price of products and the prices of purchased components and commodities. The pre-tax discount rate used is the weighted average cost of capital as determined by the Company. When the recoverable value is lower than the net book value, impairment equivalent to the difference is recorded against the assets concerned. For the Sales Financing segment , an impairment test is carried out at least once a year or whenever there is an indication of loss of value, by comparing the book value and recoverable value of assets. Recoverable value is defined as the higher of fair value (less selling costs) and value in use. The value in use is based on a market approach, determined by using multiples for each group of cash-generating units made up of legal entities or groups of legal entities in the same country. The same discount rate is used for all cash-generating units tested: a risk-free 10-year rate increased by the average risk premium for the sector in which the cash-generating units operate. The forecast horizon for income and losses is one year. For AVTOVAZ , impairment tests are also carried out at different levels (on specific assets, on the Lada brand, and on the whole Group). The AVTOVAZ Group as a whole is considered as one cash-generating unit, and no tests are conducted for individual factories or economic entities. Impairment of investments in associates and joint ventures Impairment tests of the value of investments in associates and joint ventures are carried out as soon as there is any indication of a loss of value, essentially significant adverse changes in the markets in which the Company operates, or a major or long-term decline in stock market value.