Siemens 2011 Annual Report Download - page 266

6 A. To our shareholders 51 C. Combined management’s discussion and analysis 23 B. Corporate Governance
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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 capital-
ized if () development costs can be measured reliably, the
product or process is () technically and () commercially fea-
sible, () future economic benefits are probable and (5)
Siemens intends, and () has sufficient resources, to complete
development and to use or sell the asset. The costs capitalized
include the cost of materials, direct labour and other directly
attributable expenditure that serves to prepare the asset for
use. Such capitalized costs are included in line item Other in-
tangible assets as other internally generated intangible as-
sets, see Note 17 Other intangible assets. Other develop-
ment costs are expensed as incurred. Capitalized develop-
ment costs are stated at cost less accumulated amortization
and impairment losses with an amortization period of gener-
ally three to five years.
Government grants for research and development activities
are offset against research and development costs. They are
recognized as income over the periods in which the research
and development costs incur that are to be compensated.
Government 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 or-
dinary 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 a
cash-generating unit represented by a Division or equivalent,
which is 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 cash-generating unit
that is expected to benefit from the synergies of the business
combination. If the carrying amount of the cash-generating
unit, to which the goodwill is allocated, exceeds its recover-
able amount, an impairment loss on goodwill allocated to this
cash-generating unit is recognised. The recoverable amount
is the higher of the cash-generating unit’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 cash-generating unit based on its fair value less costs to
sell. These values are generally determined based on dis-
counted cash flow calculations. Impairment losses on good-
will are not reversed in future periods if the recoverable
amount exceeds the carrying amount of the cash-generating
unit to which the goodwill is allocated; see Note 16 Goodwill
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 ba-
sis over their respective estimated useful lives to their esti-
mated 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 use-
ful lives acquired in business combinations. Intangible assets
acquired in business combinations primarily consist of cus-
tomer relationships 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 available for use are not amortized, but instead tested for
impairment at least annually.
Property, plant and equipment – Property, plant and equip-
ment is valued at cost less accumulated depreciation and im-
pairment losses. This also applies to property classified as in-
vestment property. Investment property consists of property
held either to earn rentals or for capital appreciation or both
and not used in production or for administrative purposes.
The fair value disclosed for investment property is primarily
based on a discounted cash flow approach except for certain
cases which are based on appraisal values.
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 depreciated sepa-
rately. Depreciation expense is recognized using the straight-