Siemens 2007 Annual Report Download - page 219

Notes to Consolidated Financial Statements 219
(in millions of €, except where otherwise stated and per share amounts)
Notes to Consolidated Financial Statements
Impairment of property, plant and equipment and other intangible assets
with fi nite useful lives – The Company reviews property, plant and equipment
and other intangible assets for impairment whenever events or changes in cir-
cumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets is measured by the comparison of the carrying amount of
the asset to the recoverable amount, which is the higher of the asset’s value in use
and its fair value less costs to sell. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carry-
ing amount of the assets exceeds their recoverable amount. If the fair value can-
not be determined, the assets’ value in use is applied as their recoverable amount.
The assets’ value in use is measured by discounting their estimated future cash
fl ows. If there is an indication that the reasons which caused the impairment no
longer exist, Siemens would consider the need to reverse all or a portion of the
impairment.
The Company’s property, plant and equipment and other intangible 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 com-
ponent of an entity comprising operations and cash fl ows that can be clearly dis-
tinguished, operationally and for fi nancial reporting purposes, from the rest of
the entity is classifi ed as held for sale or has been disposed of, if the component
either (a) represents a separate major line of business or geographical area of
operations or (b) is part of a single co-ordinated plan to dispose of a separate
major line of business or geographical area of operations or (c) is a subsidiary
acquired exclusively with a view to resale.
Income taxes – The Company applies IAS 12, Income Taxes. Under the liability
method of IAS 12, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the fi nancial statement car-
rying amounts of existing assets and liabilities and their respective tax bases. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized
in the income statement, unless related to items directly recognized in equity, in
the period the new laws are substantively enacted. Deferred tax assets are recog-
nized to the extent that it is probable that future taxable income will be available
against which the deductible temporary differences, unused tax losses and
unused tax credits can be utilized.
Inventories – Inventory is valued at the lower of acquisition or production cost
or net realizable value, cost being generally determined on the basis of an average
or fi rst-in, fi rst-out method. Production costs comprise direct material and labor
and applicable manufacturing overheads, including depreciation charges. Net
realizable value is the estimated selling price in the ordinary course of business,
less the estimated costs of completion and selling expenses.