PSA_GROUP_REGISTRATION_DOCUMENT_2017

CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017 Notes to the consolidated financial Statements at December 2017

RESEARCH AND DEVELOPMENT 5.3. EXPENSES

intangible assets. It is amortised from the start-of-production date over the asset’s useful life, representing up to seven years for vehicles and ten years for mechanical sub-assemblies and modules. The capitalised amount mainly comprises payroll costs of personnel directly assigned to the project, the cost of prototypes and the cost of external services related to the project. No overheads or indirect costs related to research and development activities are included, such as rent, building depreciation and information system utilisation costs. The capitalised amount also includes the portion of qualifying development expenditure incurred by the Group under cooperation agreements that is not billed to the partner. Generally, development costs billed to the Group by its partners under cooperation agreements are also capitalised, when they are meeting capitalisation criteria. All development expenditure incurred to develop mechanical sub-assemblies compliant with new emissions standards is monitored on a project-by-project basis and capitalised. Automotive Equipment Division (2) Development work is undertaken for all programmes covered by specific customer orders. Where development costs are paid in proportion to parts delivered to the customer, with their full recovery being subject to an unguaranteed minimum level of orders placed by the customer, the costs incurred during the period between the customer’s acceptance of the commercial offer and the start-of-production date of the parts or modules are recognised in intangible assets. The intangible asset is amortised based on the quantity of parts delivered to the customer, provided that accumulated amortisation at each year-end does not represent less than the amount that would be recognised if the asset were amortised on a straight- line basis over five years. If the contract includes a payment guarantee, the development expenditure is recognised in inventories and work-in-progress.

Accounting policies A. Research and development expenses include the cost of scientific and technical activities, industrial property, and the education and training necessary for the development, production or implementation and marketing of new or substantially improved materials, methods, products, processes, systems or services. Under IAS 38 “Intangible Assets” , development expenditure is recognised as an intangible asset if the entity can demonstrate in particular: its intention to complete the intangible asset and use or sell it, „ as well as the availability of adequate technical, financial and other resources for this purpose; that it is probable that the future economic benefits attributable „ to the development expenditure will flow to the entity; that the cost of the asset can be measured reliably. „ Capitalised development costs include related borrowing costs (see Note 12.2.A). Expenses for the year include research costs, non-capitalised study and development costs under the above criteria, and the amortisation of capitalised development costs. Peugeot Citroën DS and Opel Vauxhall (1) Automotive segment Development expenditure on vehicles and mechanical sub-assemblies (engines and gearboxes) incurred between the project launch (corresponding to the styling decision for vehicles) and the start-up of pre-series production is recognised in

Research and development expenses, net B.

Notes

2017

2016

(in million euros)

Total expenditure (1)

(2,932)

(2,361)

Capitalised development expenditure (2)

1,536

1,267

Non-capitalised expenditure

(1,396)

(1,094)

Amortisation of capitalised development expenditure

8.1

(842)

(821)

TOTAL (1,915) Including €2,055 million for the Peugeot Citroën DS Automotive segment (€1,924 million in 2016), €408 million for the Opel Vauxhall (1) automotive segment and €469 million for Faurecia (€437 million in 2016). In addition to this expenditure, borrowing costs are capitalised pursuant to IAS 23 “Borrowing costs” (Revised) (see Note 12.2.A). (2) (2,238)

The amounts presented in the above table are stated net of research funding received by the Group.

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GROUPE PSA - 2017 REGISTRATION DOCUMENT