Siemens 2007 Annual Report Download - page 217

Notes to Consolidated Financial Statements 217
(in millions of €, except where otherwise stated and per share amounts)
Notes to Consolidated Financial Statements
three criteria are fulfi lled, the appropriate revenue recognition convention is then
applied to each separate unit of accounting. Generally, the total arrangement con-
sideration is allocated to the separate units of accounting based on their relative
fair values. In cases where there is objective and reliable fair value evidence of the
undelivered elements but not for one or more of the delivered elements, the resid-
ual method is used, i.e. the amount allocated to delivered elements equals the
total arrangement consideration less the aggregate fair value of the undelivered
elements. Objective and reliable fair values are sales prices for the component
when it is regularly sold on a stand-alone basis or third-party prices for similar
components. If the three criteria are not met, revenue is deferred until such crite-
ria are met or until the period in which the last undelivered element is delivered.
The amount allocable to the delivered elements is limited to the amount that is not
contingent upon delivery of additional elements or meeting other specifi ed per-
formance conditions.
Product-related expenses and losses from onerous contracts – Provisions
for estimated costs related to product warranties are recorded in Cost of goods sold
and services rendered at the time the related sale is recognized, and are estab-
lished on an individual basis, except for consumer products. The estimates refl ect
historic trends of warranty costs, as well as information regarding product failure
experienced during construction, installation or testing of products. In the case of
new products, expert opinions and industry data are also taken into consideration
in estimating product warranty provisions. Expected losses from onerous con-
tracts are recognized in the period when the current estimate of total contract
costs exceeds contract revenue.
Research and development costs – Costs of research activities undertaken
with the prospect of gaining new scientifi c or technical knowledge and under-
standing are expensed as incurred.
Costs for development activities, whereby research fi ndings are applied to a
plan or design for the production of new or substantially improved products and
processes, are capitalized if development costs can be measured reliably, the
product or process is technically and commercially feasible, future economic ben-
efi ts are probable and Siemens intends, and has suffi cient resources, to complete
development and to use or sell the asset. The costs capitalized include the cost of
materials, direct labour and directly attributable general overhead expenditure
that serves to prepare the asset for use. Such capitalized costs are included in
Other intangible assets as other internally generated intangible assets (see Note
16). Other development costs are expensed as incurred. Capitalized development
costs are stated at cost less accumulated amortization and impairment losses with
an amortization period of generally three to fi ve years.
Earnings per share – Basic earnings per share is computed by dividing
income from continuing operations, income from discontinued operations and net
income, all attributable to ordinary shareholders of Siemens AG by the weighted
average shares outstanding during the year. Diluted earnings per share is calcu-
lated by assuming conversion or exercise of all potentially dilutive securities,
stock options and stock awards.