Siemens 2006 Annual Report Download - page 167

Notes to Consolidated Financial Statements
(in millions of €, except where otherwise stated and per share amounts) 163
Property, plant and equipment – Property, plant and equipment is valued at cost less
accumulated depreciation and impairment losses. If the costs of certain components of an
item of property, plant and equipment are significant in relation to the total cost of the item,
they are accounted for and depreciated separately. Depreciation expense is recognized using
the straight-line method. Costs of construction of qualifying long-term assets include
capitalized interest, which is amortized over the estimated useful life of the related asset.
The following useful lives are assumed:
Impairment of long-lived assets – The Company reviews long-lived assets held and used
for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is
measured by the comparison of the carrying amount of the asset to the undiscounted future
net cash flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Estimated fair value is generally
based on either appraised value or measured by discounted estimated future cash flows. The
Company’s long-lived assets to be disposed of are recorded at the lower of carrying amount or
fair value less costs to sell and depreciation is ceased.
Discontinued operations – Discontinued operations are reported when a component of an
entity comprising operations and cash flows that can be clearly distinguished, operationally
and for financial reporting purposes, from the rest of the entity is classified as held for sale or
has been disposed of, the operations and cash flows of the component will be (or have been)
eliminated from the ongoing operations of the entity and the entity will not have any signifi-
cant continuing involvement in the operations of the component after the disposal transac-
tion.
Derivative instruments – Derivative instruments, such as foreign currency exchange con-
tracts and interest rate swap contracts, are measured at fair value. Changes in the fair value of
derivative financial instruments are recognized periodically either in net income or, in the
case of a cash flow hedge, in AOCI, net of applicable deferred income taxes. Certain derivative
instruments embedded in host contracts are also accounted for separately as derivatives.
Fair value hedges – The carrying amount of the hedged item is adjusted by the gain or loss
attributable to the hedged risk. Where an unrecognized firm commitment is designated as the
hedged item, the subsequent cumulative change in its fair value is recognized as a separate
financial asset or liability with corresponding gain or loss recognized in net income.
For hedged items carried at amortized cost, the adjustment is amortized such that it is fully
amortized by maturity of the hedged item. For hedged firm commitments the initial carrying
amount of the assets or liabilities that result from meeting the firm commitments are adjusted
to include the cumulative changes in the fair value that were previously recognized as separate
financial assets or liabilities.
Notes to Consolidated Financial Statements
Factory and office buildings 20 to 50 years
Other buildings 5 to 10 years
Technical machinery & equipment 5 to 10 years
Furniture & office equipment generally 5 years
Equipment leased to others generally 3 to 5 years