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220 Notes to Consolidated Financial Statements

(in millions of €, except where otherwise stated and per share amounts)

Provisions – A provision is recognized in the balance sheet when the Company

has a present legal or constructive obligation as a result of a past event, it is prob-

able that an outﬂ ow of economic beneﬁ ts will be required to settle the obligation

and a reliable estimate can be made of the amount of the obligation. If the effect is

material, provisions are recognized at present value by discounting the expected

future cash ﬂ ows at a pre-tax rate that reﬂ ects current market assessments of the

time value of money. Provisions for onerous contracts are measured at the lower

of the expected cost of fulﬁ lling the contract and the expected cost of terminating

the contract. Additions to provisions are generally recognized in the income state-

ment. The present value of legal obligations associated with the retirement of

property, plant and equipment (asset retirement obligations) that result from the

acquisition, construction, development or normal use of an asset is added to the

carrying amount of the associated asset. The additional carrying amount is depre-

ciated over the life of the asset. If the asset retirement obligation is settled for

other than the carrying amount of the liability, the Company recognizes a gain

or loss on settlement.

Financial instruments – A ﬁ nancial instrument is any contract that gives

rise to a ﬁ nancial asset of one entity and a ﬁ nancial liability or equity instrument

of another entity. Financial assets of the Company mainly include cash and cash

equivalents, available-for-sale ﬁ nancial assets, trade receivables, loans receiv-

able, ﬁ nance lease receivables and derivative ﬁ nancial instruments with a posi-

tive fair value. Financial liabilities of the Company mainly comprise notes and

bonds, loans from banks, commercial paper, trade payables, ﬁ nance lease pay-

ables and derivative ﬁ nancial instruments with a negative fair value.

Financial instruments are recognized on the balance sheet when Siemens

becomes a party to the contractual obligations of the instrument. For regular way

purchases or sales of ﬁ nancial assets, i.e. purchases or sales under a contract

whose terms require delivery of the asset within the time frame established gen-

erally by regulation or convention in the marketplace concerned, the trade date

is applied.

Initially, ﬁ nancial instruments are recognized at their fair value. Transaction

costs directly attributable to the acquisition or issue of ﬁ nancial instruments are

only recognized in determining the carrying amount, if the ﬁ nancial instruments

are not measured at fair value through proﬁ t or loss. Finance lease receivables are

recognized at an amount equal to the net investment in the lease. Subsequently,

ﬁ nancial assets and liabilities are measured according to the category – cash and

cash equivalents, available-for-sale ﬁ nancial assets, loans and receivables, ﬁ nan-

cial liabilities measured at amortized cost or ﬁ nancial assets and liabilities classi-

ﬁ ed as held for trading – to which they are assigned.

Cash and cash equivalents – The Company considers all highly liquid invest-

ments with less than three months maturity from the date of acquisition to be

cash equivalents. Cash and cash equivalents are measured at cost.