Siemens 2005 Annual Report Download - page 149

149
Cash and cash equivalents – The Company considers all highly liquid investments pur-
chased with an original maturity of three months or less to be cash equivalents.
Marketable securities and investments – The Company’s marketable securities are account-
ed for at fair value if readily determinable. Securities are classified as either available-for-sale or
trading securities. Management determines the appropriate classification of its investments in
marketable securities at the time of purchase and reevaluates such determination at each balance
sheet date. Marketable securities classified as available-for-sale are reported at fair value, with
unrealized gains and losses included in Accumulated other comprehensive income (AOCI), net
of applicable deferred income taxes. Realized gains and losses for individual investments are
accounted for using the average cost method. Investments for which there is no readily deter-
minable market value are recorded at cost.
Available-for-sale marketable securities and investments which incur a decline in value below
cost that is judged to be other than temporary are considered impaired. The Company considers
all available evidence such as market conditions and prices, investee-specific factors and the
duration and extent to which fair value is less than cost in evaluating potential impairment of its
marketable securities and investments. Impairments are recognized in earnings in the period in
which the decline in value is judged to be other than temporary and a new cost basis in the mar-
ketable security or investment is established.
Inventories – Inventory is valued at the lower of acquisition or production cost or market, cost
being generally determined on the basis of an average or first-in, first-out method. Production
costs comprise direct material and labor and applicable manufacturing overheads, including
depreciation charges.
Goodwill and Other intangible assets – Intangible assets consist of goodwill and patents,
software, licenses and similar rights. The Company amortizes intangible assets with finite useful
lives on a straight-line basis over their respective estimated useful lives to their estimated resid-
ual values. Estimated useful lives for software, patents, licenses and other similar rights generally
range from three to five years, except for intangible assets with finite useful lives acquired in
business combinations. Goodwill and intangible assets other than goodwill which are deter-
mined to have indefinite useful lives are not amortized, but instead tested for impairment at least
annually. The Company evaluates the recoverability of goodwill using a two-step impairment test
approach at the division level (reporting unit). In the first step, the fair value of the division is
compared to its carrying amount including goodwill. In the case that the fair value of the division
is less than its carrying amount, a second step is performed which compares the fair value of the
division’s goodwill to the carrying amount of its goodwill. The fair value of goodwill is deter-
mined based upon the difference between the fair value of the division and the net of the fair val-
ues of all the assets and liabilities of the division (including any unrecognized intangible assets).
If the fair value of goodwill is less than the carrying amount, the difference is recorded as an
impairment. See Notes 14 and 15 for further information.
Notes to Consolidated Financial Statements
Consolidated Financial Statements Notes to Consolidated Financial Statements
(in millions of €, except where otherwise stated
and per share amounts)