Siemens 2007 Annual Report Download - page 221

Notes to Consolidated Financial Statements 221
(in millions of €, except where otherwise stated and per share amounts)
Notes to Consolidated Financial Statements
Available-for-sale fi nancial assets – Investments in equity instruments, debt
instruments and fund shares are all classifi ed as available-for-sale fi nancial assets.
They are accounted for at fair value if reliably measurable, with unrealized gains
and losses included in Other components of equity, net of applicable deferred income
taxes. Equity instruments that do not have a quoted market price in an active mar-
ket and whose fair value cannot be reliably measured are recorded at cost.
When available-for-sale fi nancial assets incur a decline in fair value below
acquisition cost and there is objective evidence that the asset is impaired, the
cumulative loss that has been recognized in equity is removed from equity and rec-
ognized in the Consolidated Statements of Income. The Company considers all
available evidence such as market conditions and prices, investee-specifi c factors
and the duration and the extent to which fair value is less than acquisition cost in
evaluating potential impairment of its available-for-sale fi nancial assets. An
impairment loss may be reversed in subsequent periods for debt instruments, if the
reasons for the impairment no longer exist.
Loans and receivables – Financial assets classifi ed as loans and receivables are
measured at amortized cost using the effective interest method less any impair-
ment losses. Impairment losses on trade and other receivables are recognized
using separate allowance accounts. See Note 3 for further information regarding
the determination of impairment.
Financial liabilities – Siemens measures fi nancial liabilities, except for deriva-
tive fi nancial instruments, at amortized cost using the effective interest method.
Derivative fi nancial instruments – Derivative fi nancial instruments, such as
foreign currency exchange contracts and interest rate swap contracts, are mea-
sured at fair value. Derivative instruments are classifi ed as held for trading unless
they are designated as hedging instruments, for which hedge accounting is applied.
Changes in the fair value of derivative fi nancial instruments are recognized peri-
odically either in net income or, in the case of a cash fl ow hedge, in Other compo-
nents of equity, net of applicable deferred income taxes. Certain derivative instru-
ments 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 fi rm commit-
ment is designated as the hedged item, the subsequent cumulative change in its
fair value is recognized as a separate fi nancial 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 fi rm commit-
ments the initial carrying amount of the assets or liabilities that result from meet-
ing the fi rm commitments are adjusted to include the cumulative changes in the
fair value that were previously recognized as separate fi nancial assets or liabilities.