Siemens 2010 Annual Report Download - page 225

147 Consolidated Financial Statements
148 Consolidated Statements of Income
149 Consolidated Statements of Comprehensive Income
150 Consolidated Statements of Financial Position
151 Consolidated Statements of Cash Flow
152 Consolidated Statements of Changes in Equity
154 Notes to Consolidated Financial Statements
(in millions of €, except where otherwise stated
and per share amounts)
261 Additional information
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Research and development costs – Costs of research activi-
ties undertaken with the prospect of gaining new scientific or
technical knowledge and understanding are expensed as in-
curred.
Costs for development activities, whereby research findings
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 eco-
nomic benefits are probable and Siemens intends, and has
sufficient resources, to complete development and to use or
sell the asset. The costs capitalized include the cost of materi-
als, direct labour and other directly attributable 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 . Other development
costs are expensed as incurred. Capitalized development costs
are stated at cost less accumulated amortization and impair-
ment losses with an amortization period of generally three to
five years.
Government grants for research and development activities are
offset against research and development costs. They are recog-
nized as income over the periods in which the research and
development costs incur that are to be compensated. Govern-
ment grants for future research and development costs are
recorded as deferred income.
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
number of shares outstanding during the year. Diluted earn-
ings per share are calculated by assuming conversion or exer-
cise of all potentially dilutive securities and share-based pay-
ment plans.
Goodwill – Goodwill is not amortized, but instead tested for
impairment annually, as well as whenever there are events or
changes in circumstances (triggering events) which suggest
that the carrying amount may not be recoverable. Goodwill is
carried at cost less accumulated impairment losses.
The goodwill impairment test is performed at the level of Divi-
sions which represent cash-generating units or groups of cash-
generating units and are the lowest level at which goodwill is
monitored for internal management purposes.
For the purpose of impairment testing, goodwill acquired in a
business combination is allocated to the (groups of) cash-
generating unit(s) that are expected to benefit from the syner-
gies of the business combination. If the carrying amount of
the Division, to which the goodwill is allocated, exceeds its
recoverable amount, an impairment loss on goodwill allocated
to this Division is recognised. The recoverable amount is the
higher of the Division’s fair value less costs to sell and its value
in use. If either of these amounts exceeds the carrying
amount, it is not always necessary to determine both amounts.
Siemens determines the recoverable amount of a Division
based on its fair value less costs to sell. These values are gener-
ally determined based on discounted cash flow calculations.
Impairment losses on goodwill are not reversed in future peri-
ods if the recoverable amount exceeds the carrying amount of
the (group of) cash-generating unit(s) to which the goodwill is
allocated; see Note  for further information.
Other intangible assets – Other intangible assets consist of
software and other internally generated intangible assets,
patents, licenses and similar rights. The Company amortizes
intangible assets with finite useful lives on a straight-line basis
over their respective estimated useful lives to their estimated
residual values. Estimated useful lives for software, patents,
licenses and other similar rights generally range from three to
five years, except for intangible assets with finite useful lives
acquired in business combinations. Intangible assets acquired
in business combinations primarily consist of customer rela-
tionships and technology. Weighted average useful lives in
specific acquisitions ranged from nine to twenty-two years for
customer relationships and from seven to twelve years for
technology. Intangible assets which are determined to have
indefinite useful lives as well as intangible assets not yet avail-
able for use are not amortized, but instead tested for impair-
ment at least annually.
Property, plant and equipment – Property, plant and equip-
ment is valued at cost less accumulated depreciation and im-
pairment 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 depreci-
ated separately. Depreciation expense is recognized using the
straight-line method. Residual values and useful lives are re-
viewed annually and, if expectations differ from previous esti-
mates, adjusted accordingly. Costs of construction of qualify-
ing assets, i.e. assets that require a substantial period of time
to be ready for its intended use, include capitalized interest,
which is amortized over the estimated useful life of the related
asset. The following useful lives are assumed: