SCH2017_DRF_EN_Livre.indb

5 Consolidated financial statements at December 31, 2017 Notes to the consolidated financial statements

The credit risk of trade receivables is assessed on a collective basis country by country, as the geographical origin of receivables is considered representative of their risk profile. Countries are classified by risk profile using the assessment provided by an external agency. The provision for expected credit losses is evaluated using (i) the probabilities of default communicated by a credit agency, (ii) historical default rates, (iii) ageing balance, (iv) as well as the Group’s assessment of the credit risk taking into account guarantees and credit insurance Once it is known with certainty that a doubtful account will not be collected, the doubtful account and its related depreciation are written off through the Income Statement. Accounts receivable are discounted in cases where they are due in over one year and the impact of adjustment is significant. 1.15 – Assets held for sale Assets held for sale are no longer amortized or depreciated and are recorded separately in the balance sheet under “Assets held for sale” at the lower of its amortized cost or net realizable value. 1.16 – Deferred taxes Deferred taxes, related to temporary differences between the tax basis and accounting basis of consolidated assets and liabilities, are recorded using the balance sheet liability method. Deferred tax assets are recognized when it is probable that they will be recovered at a reasonably determinable date. Future tax benefits arising from the utilization of tax loss carry forwards (including amounts available for carry forward without time limit) are recognized only when they can reasonably be expected to be realized. Deferred tax assets and liabilities are not discounted. Deferred tax assets and liabilities related to the same unit and which are expected to reverse in the same period of time are netted off. 1.17 – Cash and cash equivalents Cash and cash equivalents presented in the balance sheet consist of cash, bank accounts, term deposits of three months or less and marketable securities traded on organized markets. Marketable securities are short-term, highly-liquid investments that are readily convertible to known amounts of cash at maturity. They notably consist of commercial paper, mutual funds and equivalents. In light of their nature and maturities, these instruments represent insignificant risk of changes in value and are treated as cash equivalents. 1.18 – Schneider Electric SE shares Schneider Electric SE shares held by the parent company or by fully consolidated companies are measured at acquisition cost and deducted from equity. They are held at their acquisition cost until sold. Gains (losses) on the sale of own shares are added (deducted) from consolidated reserves, net of tax.

Where the recoverable amount of an asset or CGU is lower than its book value, an impairment loss is recognized for the excess of the book value over the recoverable value. The recoverable value is defined as the highest value between the value in use and the realizable value net of costs. Where the tested CGU comprises goodwill, any impairment losses are firstly deducted there from. 1.12 – Non-current financial assets Investments in non-consolidated companies are initially recorded at their cost of acquisition and subsequently measured at fair value. The fair value of investments listed in an active market may be determined reliably and corresponds to the listed price at balance sheet date (Level 1 from the fair value hierarchy as per IFRS 7). IFRS 9 standard allows two accounting treatments for equity instruments: E fair value is recognised through “Other Comprehensive Income”, in the comprehensive Income statement, and, in balance sheet, in equity under “Other reserves”, with no subsequent recycling in the income statement even upon sale; E fair value, as well as gain or loss in case of sale, are recognised in the income statement. The election between those two methods is to be made from inception for each equity investment and is irrevocable. Venture capital (FCPR)/Mutual funds (SICAV) are recognised at fair value through income statement, in accordance with IFRS 9. Loans, recorded under “Other non-current financial assets”, are carried at amortized cost. In accordance with IFRS 9, a depreciation is booked from inception to reflect the expected credit risk losses within 12 months. In case of significant degradation of the credit quality, the initial level of depreciation is modified to cover the entire expected losses over the remaining maturity of the loan. 1.13 – Inventories and work in progress Inventories and work in progress are measured at the lower of their initial recognition cost (acquisition cost or production cost generally determined by the weighted average price method) or of their estimated net realizable value. Net realizable value corresponds to the estimated selling price net of remaining expenses to complete and/or sell the products. Inventory impairment losses are recognized in “Cost of sales”. The cost of work in progress, semi-finished and finished products, includes the cost of materials and direct labor, subcontracting costs, all production overheads based on normal manufacturing capacity and the portion of research and development costs that are directly related to the manufacturing process (corresponding to the amortization of capitalized projects in production and product and range of products maintenance costs). 1.14 – Trade and other operating receivables Trade and other operating receivables are depreciated according to the simplified IFRS 9 model. From inception, trade receivables are depreciated to the extent of the expected losses over their remaining maturity.

2017 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC

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