BMW 2006 Annual Report Download - page 78

77
techniques e.g. discounted cash flow analysis based
on market information available at thebalancesheet
date.
Loans and receivables which are not held by the
Group for trading purposes, held-to-maturity finan-
cial investments and all financial assets for which
published price quotations in an active market are
not available and whose fair value cannot be deter-
mined reliably, are measured, to the extent that they
have a fixed term, at amortised cost, using the effec-
tive interest method. When the financial assets do
not have a fixed term, they are measured at acquisi-
tion cost.
In accordance with IAS 39 (Financial Instruments:
Recognition and Measurement), assessments are
made regularly as to whether there is any objective
evidence that a financial asset or group of assets
may be impaired. Impairment losses identified after
carrying out an impairment test are recognised as
an expense. Gains and losses on available-for-sale
financial assets are recognised directly in equity until
the financial asset is disposed of or is determined to
be impaired, at which time the cumulative loss pre-
viously recognised in equity is included in net profit
or loss for the period.
With the exception of derivative financial instru-
ments, all receivables and other current assets relate
to loans and receivables which arenot held for trading.
They are measured at amortised cost. Receivables
with maturities of over one year which bear no or a
lower than market interest rate are discounted. Ap-
propriate allowances are recognised to take account
of all identifiable risks.
Receivables from sales financing comprise
receivables from retail customer, dealer and lease
financing.
Items are presented as financial assets to the
extent that they relate to financing transactions.
Derivative financial instruments are only used
within the BMW Group for hedging purposes in or-
der to reduce the currency, interest rate and market
price risks from operating activities and related fi-
nancing requirements. All derivative financial instru-
ments (such as interest, currency and combined
interest/currency swaps as well as forward currency
contracts) are measured in accordance with IAS 39
at their fair value, irrespective of their purpose or the
intention for which they are held. The fair values of
derivative financial instruments are measured using
market information and recognised valuation tech-
niques. In those cases where hedge accounting is
applied, changes in fair value are recognised either
in income or directly in equity under accumulated
other equity, depending on whether the transac-
tions are classified as fair value hedges or cash flow
hedges. In the case of fair value hedges, the results
of the fair value measurement of the derivative finan-
cial instruments and the related hedged items are
recognised in the income statement. In the case of
fair value changes from cash flow hedges which are
used to mitigate the future cash flow risk on a recog-
nised asset or liability or on forecast transactions,
unrealised gains and losses on the hedging instru-
ment are recognised initially directly in accumulated
other equity. Any such gains or losses are recog-
nised subsequently in the income statement when
the hedged item is recognised in the income state-
ment. The portion of the gains or losses from fair
value measurement not relating to the hedged item
is recognised immediately in the income statement.
If, contrary to the normal case within the BMW Group,
hedge accounting cannot be applied, the gains or
losses from the fair value measurement of derivative
financial instruments are recognised immediately in
the income statement.
In accordance with IAS 12 (Income Taxes), de-
ferred taxes are recognised on all temporary differ-
ences between the tax and accounting bases of
assets and liabilities and on consolidation proce-
dures. Deferred tax assets also include claims to
future tax reductions which arise from the expected
usage of existing tax losses available for carryfor-
ward, where usage is probable. Deferred taxes are
computed using enacted or planned tax rates which
are expected to apply in the relevant national juris-
dictions when the amounts are recovered.
Inventories of raw materials, supplies and goods
for resale are stated at the lower of average acquisi-
tion cost and net realisable value.
Work in progress and finished goods are stated
at the lower of average acquisition cost and net
realisable value. Manufacturing cost comprises all
costs which are directly attributable to the manu-
facturing process and an appropriate proportion of
production-related overheads. This includes pro-
duction-related depreciation and an appropriate
proportion of administrative and social costs.