The Group is often required to make estimates and assumptions
regarding the future. The estimates will, by definition, rarely equal
the actual results achieved. The estimates and judgements that
have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities are discussed below.
Estimates and judgements are continually re-assessed and are
based on historical experience as well as other factors, including
expectations of future events that are believed to be reasonable
under the circumstances.
Depreciation, amortisation rates and residual values
The Group depreciates or amortises its assets over their
estimated useful lives, as more fully described in the accounting
policies for property, plant and equipment and intangible
assets. The estimation of the useful lives of assets is based on
historic performance as well as expectations about future use
and therefore requires a significant degree of judgement to be
applied by management. The actual lives of these assets can
vary depending on a variety of factors, including technological
innovation, product life cycles and maintenance programmes.
Significant judgement is applied by management when
determining the residual values for intangible assets and property,
plant and equipment. In the event of contractual obligations in
terms of which a termination consideration is payable to the
Group, management will apply a residual value to the intangible
asset. When determining the residual value for property, plant
and equipment, the following factors are taken into account:
- external residual value information (if applicable); and
- internal technical assessments for complex plant and
Refer to notes 1 and note 3 of the Group financial statements, and
notes 1 and note 2 of the Company financial statements.
Indefinite useful life intangible assets
Judgement is applied when assessing whether an intangible asset
has a finite or an indefinite useful life.
Significant judgement is needed by management when
determining the classification of intangible assets as indefinite
useful life assets. The following factors are taken into account
when this classification is made:
- the ability to use the asset efficiently. Historical product sales,
volume and profitability trends as well as the expected uses
for the asset, further evident from budgets, future growth and
plans to invest in each of the assets over the long term are
taken into account when this is being assessed;
- estimates of useful lives of similar assets – historical trends,
market sentiment and/or the impact of any competitive activity
will be taken into account;
- the strategy (2010 budget, specific marketing plans, specific
enhancement plans and the identification of new markets) for
obtaining maximum economic benefit from the asset;
- the stability of the industry and economy in which the asset
will be deployed;
- expected actions by competitors and potential competitors;
- the willingness and ability of the entity to commit resources to
maintain the performance of the asset;
- the period of the entity’s control over the asset and any legal
or other restriction on its ability to use the asset;
- redundancy of a similar medication/device due to changes in
market preferences; and
- development of new drugs treating the same disease.
Refer to notes 3 of the Group financial statements and note 2 of
the Company financial statements.
Impairment of assets
Property, plant and equipment, goodwill and intangible assets are
assessed for impairment at least on an annual basis, as more fully
described in the accounting policy in respect of impairment and
note 39 of the Group financial statements. The future cash flows
are assessed, taking into account forecast market conditions and
the expected lives of these assets. The present value of these
cash flows is compared to the current net asset value.
Refer to notes 1, note 2 and note 3 of the Group financial statements and
notes 1 and note 2 of the Company financial statements.
Valuation of derivative financial instruments
The valuation of derivative financial instruments is based on the
market situation at year-end. The net market value of all forward
exchange contracts at year-end was calculated by comparing
the forward exchange contracted rates to the equivalent yearend
market foreign exchange rates. The present value of these
net market values were then discounted using the appropriate
currency specific discount curve. The fair value of interest rate
swaps and cross currency swaps is calculated as the present
value of estimated future cash flows. The value of these derivative
instruments fluctuates on a daily basis and the actual amounts
realised may differ materially from the value at which they are
reflected on the statement of financial position.
Refer to notes 10 and note 23 of the Group financial statements.
Allowance account for losses
The Group insures private market customers where possible and
provision is made for the uninsured balance of long outstanding
trade receivables where it considers the recoverability to be
A significant degree of judgement is applied by management
when considering whether a trade receivable is recoverable or
The following factors are taken into account when considering
whether a trade receivable is impaired:
- default of payments;
- history of the specific customer with the Group;
- indications of financial difficulties of the specific customer;
- credit terms specific to the customer; and
- general economic conditions.
Refer to note 9 of the Group financial statements.
Calculation of IFRS 2 charge
The valuation of the share-based payment expense requires a
significant degree of judgement to be applied by management.
The calculation of the share-based payment expense in respect
of share options and share appreciation rights is based on the
valuation of instruments at grant date, determined with the use
of the binomial model. This model requires the use of several
assumptions, among which the expected volatility of the Aspen
share price, expected dividend yield and assumptions regarding
percentages of instruments expected to vest. These assumptions
are reviewed on an annual basis to take account of changes in
Refer to note 14 of the Group financial statements.
Recognition of deferred tax assets in respect of assessed
Deferred tax assets have been recognised for the carry forward
amount of unused tax losses relating to the Group’s operations
where, among other things, tax losses can be carried forward
indefinitely and there is evidence that it is probable that sufficient
taxable profits will be available in the future to utilise all tax losses
carried forward. Deferred tax assets are not recognised for carry
forward of unused tax losses when it cannot be demonstrated
that it is probable that taxable profits will be available against
which the deductable temporary difference can be utilised.
The likelihood of a deferred tax asset being recognised is
based on the future profitability of the underlying business. In
determining whether a business will have future taxable profits to
utilise against assessed losses, management will take into account
budgets as well as updated forecasts for future periods.
Refer to note 7 of the Group financial statements and note 6 of
the Company financial statements.
Determination of net realisable value of inventories
Net realisable value is the estimate of the selling price of inventories
in the ordinary course of business, less the costs of completion
and applicable variable selling expenses. Management is required
to exercise considerable judgement in the determination of this
estimate, specifically relating to the forecasting of demand.
Management is also required to exercise significant judgement
in estimating the provision for obsolete stock. Such judgement
would take into account the following:
- change in technology;
- regulatory requirements; and
- stock nearing expiry dates.
Refer to note 8 of the Group financial statements.
Fair value determination in business combinations
IFRS 3 requires all assets, liabilities and contingent liabilities to be
measured at fair value when accounting for business combinations.
Aspen makes use of various valuation methodologies in
determining these fair values, including the use of reputable
independent valuers. Valuations are inherently subjective, and
require the use of judgement. Judgement is applied in determining
the allocation of goodwill to different CGU’s. The allocation is
done based on the expected benefit arising from synergies due
to the business combinations.
Initial accounting for business combination
The initial accounting for the acquisitions in the current year were
only determined provisionally by the time of the publication of
the Group results for 2009.
Refer to note 37 of the Group financial statements.
Determination of contingent consideration in respect
of deferred-payables and deferred-receivables
This relates to amounts that are only to be settled in the future
based on the underlying contractual obligations. Management
is required to exercise considerable judgement in determining
the estimate of the amount payable or receivable, specifically
relating to the forecasting of future financial information as well
as determining an appropriate discount rate.
Refer to notes 9 and note 18 of the Group financial statements.
Determination of average translation rates
Income and expenditure transactions are translated using the
average rate of exchange for the year. Management considers
the average rate to approximate the actual rates prevailing on
the dates on which these transactions occur.
Fair value determination
The carrying values of financial assets and liabilities with a
maturity of less than one year are assumed to approximate their