BMW 2011 Annual Report Download - page 94

94
76 GROUP FINANCIAL STATEMENTS
76 Income Statements
76 Statement of
Comprehensive Income
78 Balance Sheets
80 Cash Flow Statements
82 Group Statement of Changes
in Equity
84 Notes
84 Accounting Principles
and Policies
100 Notes to the Income
Statement
107 Notes to the Statement
of Comprehensive Income
108
Notes to the Balance Sheet
129 Other Disclosures
145 Segment Information
Estimations are required to assess the recoverability of
a cash-generating unit (CGU). If the recoverability of an
asset is being tested at the level of a CGU, assumptions
must be made with regard to future cash inflows and
outflows, involving in particular an assessment of the
forecasting period to be used and of developments after
that period. Forecasting assumptions are determined
by management in order to calculate future cash flows,
including assumptions about future macroeconomic
developments, market developments relevant for the
automotive sector and the legal environment.
The BMW Group regularly checks the recoverability of
its leased products. One of the main assumptions re-
quired for leased products relates to their residual value
since this represents a significant portion of future cash
inflows. In order to estimate the level of prices likely to
be achieved in the future, the BMW Group incorpo-
rates internally available historical data, current market
data and forecasts of external institutions into its cal-
culations.
Internal back-testing is applied to validate the
estimations made. Further information is provided in
note 25.
The bad debt risk relating to receivables from sales
financing
is assessed regularly by the BMW Group. For
these purposes, the main factors taken into considera-
tion are past experience, current market data (such as
the level of financing business arrears), rating classes
and scoring information. Further information is pro-
vided in
note 27.
Estimations are required for the purposes of recognising
and measuring provisions for guarantee and warranty
obligations. In addition to statutorily prescribed manu-
facturer warranties, the BMW Group also offers various
categories of guarantee depending on the product and
sales market concerned. Provisions for guarantee and
warranty obligations are recognised at the beginning of
a lease or sales contract or when a new category of
guarantee is introduced. Various factors are taken into
consideration when estimating the level of the provision,
including past experience with the nature and amount
of claims as well as an assessment of future potential re-
pair and maintenance costs. Further information is pro-
vided in note 36.
BMW AG and its subsidiaries recognise provisions for
litigation and liability risks when an outflow of re-
sources is probable and a reliable estimate can be made
of the amount of the obligation. Management is required
to make assumptions with respect to the probability of
incurrence, the amount involved and the duration of
the legal dispute. For these reasons, the recognition and
measurement of provisions for litigation and liability
risks are subject to uncertainty. Further information is
provided in note 36.
The calculation of pension provisions requires assump-
tions to be made with regard to discount factors, salary
trends, employee fluctuation, the life expectancy of
employees and the expected rate of return on plan
assets. Discount factors are determined annually by
reference to market yields at the end of the reporting
period on high quality corporate bonds. A company-
specific default risk is not taken into account. The
salary level trend refers to the expected rate of salary
increase which is estimated annually depending on
inflation and the career development of employees
within the Group. The expected rate of return on plan
assets is based on market expectations prevailing at
the beginning of the reporting period for investment
income over the remaining period of the obligation
and is determined for the relevant asset classes in
which plan assets are invested, taking account of costs
and unplanned risks. Further information is provided
in note 35.
The calculation of deferred tax assets requires assump-
tions to be made with regard to the level of future tax-
able income and the timing of recovery of deferred tax
assets. These assumptions take account of forecast oper-
ating results and the impact on earnings of the reversal
of taxable temporary differences. Since future business
developments cannot be predicted with certainty and to
some extent cannot be influenced by the BMW Group,
the measurement of deferred tax assets is subject to un-
certainty. Further information is provided in note 17.