Siemens 2010 Annual Report Download - page 226

6 To our shareholders 21 Corporate Governance 49 Combined management’s discussion and analysis
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Factory and office buildings 20 to 50 years
Other buildings 5 to 10 years
Technical machinery & equipment 5 to 10 years
Furniture & office equipment generally 5 years
Equipment leased to others generally 3 to 5 years
Impairment of property, plant and equipment and other
intangible assets – The Company reviews property, plant and
equipment and other intangible assets for impairment when-
ever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In addi-
tion, intangible assets with indefinite useful lives as well as
intangible assets not yet available for use are subject to an an-
nual impairment test. Recoverability of assets is measured by
the comparison of the carrying amount of the asset to the re-
coverable amount, which is the higher of the asset’s value in
use and its fair value less costs to sell. If assets do not generate
cash inflows that are largely independent of those from other
assets or groups of assets, the impairment test is not per-
formed at an individual asset level, instead, it is performed at
the level of the cash-generating unit the asset belongs to. 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 or cash generating unit exceeds their
recoverable amount. If the fair value cannot be determined,
the assets’ value in use is applied as their recoverable amount.
The assets’ value in use is measured by discounting their esti-
mated future cash flows. If there is an indication that the rea-
sons which caused the impairment no longer exist, Siemens
assesses the need to reverse all or a portion of the impairment.
The Company ’s property, plant and equipment and other in-
tangible 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 and non-current assets held for
disposal – Discontinued operations are reported when a com-
ponent of an entity comprising operations and cash flows that
can be clearly distinguished, operationally and for financial
reporting purposes, from the rest of the entity is classified as
held for sale or has been disposed of, if the component either
(a) represents a separate major line of business or geographi-
cal 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.
Siemens classifies a non-current asset or a disposal group
(outside discontinued operations) as held for disposal if its
carrying amount will be recovered principally through a sale
transaction rather than through continuing use. For this to be
the case, the asset or disposal group must be available for im-
mediate sale in its present condition subject only to terms that
are usual and customary for sales of such assets or disposal
groups and its sale must be highly probable.
Income taxes – The Company applies IAS , Income Taxes.
Under the liability method of IAS , deferred tax assets and
liabilities are recognized for the future tax consequences at-
tributable to differences between the financial statement car-
rying amounts of existing assets and liabilities and their re-
spective tax bases. The effect on deferred tax assets and liabil-
ities of a change in tax rates is recognized in the income
statement, unless related to items directly recognized in equi-
ty, in the period the new laws are substantively enacted. De-
ferred tax assets are recognized to the extent that it is probable
that future taxable income will be available against which the
deductible temporary differences, unused tax losses and un-
used tax credits can be utilized.
Inventories – Inventory is valued at the lower of acquisition or
production cost and net realizable value, cost being generally
determined on the basis of an average or first-in, first-out
method. Production costs comprise direct material and labor
and applicable manufacturing overheads, including deprecia-
tion charges. Net realizable value is the estimated selling price
in the ordinary course of business, less the estimated costs of
completion and selling expenses.
Defined benefit plans – Siemens measures the entitlements
of the defined benefit plans by applying the projected unit
credit method. The approach reflects an actuarially calculated
net present value of the future benefit entitlement for services
already rendered. In determining the net present value of the
future benefit entitlement for service already rendered (De-
fined Benefit Obligation (DBO)). Siemens considers future
compensation and benefit increases, because the employee’s
final benefit entitlement at regular retirement age depends on
future compensation or benefit increases. For post-employ-
ment healthcare benefits, Siemens considers health care
trends in the actuarial valuations.