BMW 2011 Annual Report Download - page 93

93 GROUP FINANCIAL STATEMENTS
the expected usage of existing tax losses available for
carryforward to the extent that future usage is probable.
Deferred taxes are computed using enacted or planned
tax rates which are expected to apply in the relevant
national jurisdictions when the amounts are recovered.
Inventories of raw materials, supplies and goods for re-
sale are stated at the lower of average acquisition cost
and net realisable value.
Work in progress and finished goods are stated at the
lower of average manufacturing cost and net realisable
value. Manufacturing cost comprises all costs which
are directly attributable to the manufacturing process
and an appropriate proportion of production-related
overheads. This includes production-related depreciation
and an appropriate proportion of administrative and
social costs.
Borrowing costs are not included in the acquisition or
manufacturing cost of inventories.
Cash and cash equivalents comprise mainly cash on
hand and cash at bank with an original term of up to
three months.
Provisions for pensions and similar obligations are rec-
ognised using the projected unit credit method in ac-
cordance with IAS 19 (Employee Benefits). Under this
method, not only obligations relating to known vested
benefits at the reporting date are recognised, but also
the effect of future increases in pensions and salaries.
This involves taking account of various input factors
which are evaluated on a prudent basis. The calculation
is based on an independent actuarial valuation which
takes into account all relevant biometric factors.
Assumptions, judgements and estimations
The preparation of the Group Financial Statements in ac-
cordance with IFRSs requires management to make cer-
tain assumptions and judgements and to use estimations
that can affect the reported amounts of assets and liabili-
ties, revenues and expenses and contingent liabilities.
Judgements have to be made in particular when assessing
whether the risks and rewards incidental to ownership of
Actuarial gains and losses arising on defined benefit
pension and similar obligations and on plan assets
are recognised, net of deferred tax, directly in equity
(revenue reserves). This accounting treatment is meant
to make it clear that these amounts will not be reclassi-
fied to the income statement in future periods.
The expense related to the reversal of discounting on
pension obligations and the income from the expected
return on pension plan assets are reported separately
as part of the financial result. All other costs relating to
allocations to pension provisions are allocated to costs
by function in the income statement.
Other provisions are recognised when the BMW Group
has a present obligation arising from past events, the
settlement of which is probable and when a reliable
estimate can be made of the amount of the obligation.
Measurement is computed on the basis of fully attribut-
able costs. Non-current provisions with a remaining
period of more than one year are discounted to the
present value of the expenditures expected to settle the
obligation at the end of the reporting period.
Financial liabilities are measured on first-time recognition
at cost which corresponds to the fair value of the con-
sideration given. Transaction costs are also taken into
account except for financial liabilities allocated to
the category “financial liabilities measured at fair value
through profit or loss”. Subsequent to initial recognition,
liabilities are – with the exception of derivative financial
instruments – measured at amortised cost using the ef-
fective interest method. The BMW Group has no liabilities
which are held for trading. Liabilities from finance
leases are stated at the present value of the future lease
payments and disclosed under other financial liabilities.
a leased asset have been transferred and, hence, the clas-
sification of leasing arrangements. Major items requiring
assumptions and estimations are described below.
The assumptions used are continuously checked for their
validity. Actual amounts could differ from the
assump-
tions and estimations used if business conditions develop
differently to the Group’s expectations.
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