Siemens 2010 Annual Report Download - page 231

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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historical bad debts on a portfolio basis. For the determination
of the country-specific component of the individual allow-
ance, we also consider country credit ratings, which are cen-
trally determined based on information from external rating
agencies. Regarding the determination of the valuation allow-
ance derived from a portfolio-based analysis of historical bad
debts, a decline of receivables in volume results in a corre-
sponding reduction of such provisions and vice versa. As of
September ,  and , Siemens recorded a total valu-
ation allowance for accounts receivable of €, and €,,
respectively.
Impairment – Siemens tests at least annually whether good-
will has incurred any impairment, in accordance with its ac-
counting policy. The determination of the recoverable amount
of a Division to which goodwill is allocated involves the use of
estimates by management. The outcome predicted by these
estimates is influenced e.g. by the successful integration of
acquired entities, volatility of capital markets and foreign ex-
change rate fluctuations. The recoverable amount is the higher
of the Division’s fair value less costs to sell and its value in use.
The Company generally uses discounted cash flow based meth-
ods to determine these values. These discounted cash flow
calculations use five-year projections that are based on the fi-
nancial budgets approved by management. Cash flow projec-
tions take into account past experience and represent manage-
ment’s best estimate about future developments. Cash flows
after the planning period are extrapolated using individual
growth rates. Key assumptions on which management has
based its determination of fair value less costs to sell and value
in use include estimated growth rates, weighted average cost
of capital and tax rates. These estimates, including the meth-
odology used, can have a material impact on the respective
values and ultimately the amount of any goodwill impairment.
In fiscal  a goodwill impairment of €, was recognized
in the Diagnostics Division of Sector Healthcare. See Note 
for further information as well as for parameters of Health-
care’s Diagnostic Division impairment test.
Likewise, whenever property, plant and equipment, other in-
tangible assets and investments accounted for using the eq-
uity method are tested for impairment, the determination of
the assets’ recoverable amount involves the use of estimates
by management and can have a material impact on the respec-
tive values and ultimately the amount of any impairment.
In the three months ended September , , NSN, pre-
sented in the segment Equity Investments was tested for im-
pairment. The main triggering events were NSN’s loss of mar-
ket share as well as a decrease in the product business opera-
tions resulting in significantly adjusted financial forecasts of
future cash flows of NSN. The NSN impairment test is based on
fair value less costs to sell applying a discounted cash flow
method. As a result, an impairment loss of €, was recog-
nized in fiscal . Whether future impairments of our invest-
ment in NSN will be required is dependent on its ability to
grow and / or otherwise return to increasing profitability.
Employee benefit accounting – Pension plans and similar
commitments – Obligations for pension and other post-em-
ployment benefits and related net periodic benefit costs are
determined in accordance with actuarial valuations. These
valuations rely on key assumptions including discount rates,
expected return on plan assets, expected salary increases,
mortality rates and health care trend rates. The discount rate
assumptions are determined by reference to yields on high-
quality corporate bonds of appropriate duration and currency
at the end of the reporting period. In case such yields aren’t
available discount rates are based on government bonds
yields. Expected returns on plan assets assumptions are deter-
mined on a uniform methodology, considering long-term his-
torical returns and asset allocations. Due to changing market
and economic conditions the underlying key assumptions may
differ from actual developments and may lead to significant
changes in pension and other post-employment benefit obliga-
tions. Such differences are recognized in full directly in equity
in the period in which they occur without affecting profit or
loss. For a discussion of the current funded status and a sensi-
tivity analysis with respect to the impact of certain critical as-
sumptions on the net periodic benefit cost see Note .
Termination benefits – Siemens runs restructuring projects on
an individual basis. Costs in conjunction with terminating
employees and other exit costs are subject to significant esti-
mates and assumptions. See Note  for further information.
Provisions – Significant estimates are involved in the determi-
nation of provisions related to onerous contracts, warranty
costs, asset retirement obligations and legal proceedings. A
significant portion of the business of certain operating Divi-
sions is performed pursuant to long-term contracts, often for
large projects, in Germany and abroad, awarded on a competi-
tive bidding basis. Siemens records a provision for onerous
sales contracts when current estimates of total contract costs
exceed expected contract revenue. Such estimates are subject
to change based on new information as projects progress to-