Siemens 2012 Annual Report Download - page 237

135 D. Consolidated Financial Statements 239 E. Additional Information
140 D. Consolidated Statements of Changes in Equity
142 D. Notes to Consolidated Financial Statements
232 D. Supervisory Board and Managing Board
136 D. Consolidated Statements of Income
137 D. Consolidated Statements of Comprehensive Income
138 D. Consolidated Statements of Financial Position
139 D. Consolidated Statements of Cash Flow
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transactions is recognized immediately if significant risks and
rewards of ownership have passed to the buyer, the leaseback
results in an operating lease and the transaction is established
at fair value.
Dividends: Dividends are recognized when the right to receive
payment is established.
Functional costs – In general, operating expenses by types
are assigned to the functions following the functional area of
the corresponding profit and cost centers. Expenses relating to
cross-functional initiatives or projects are assigned to the re-
spective functional costs based on an appropriate allocation
principle. Regarding amortization see    -
 ,   see   ,
   and regarding employee benefit expense
see    .
Government grants – Government grants are recognized
when there is reasonable assurance that the conditions at-
tached to the grants are complied with and the grants will be
received. Grants awarded for the purchase or the production of
fixed assets (grants related to assets) are generally offset
against the acquisition or production costs of the respective
assets and reduce future depreciations accordingly. Grants
awarded for other than non-current assets (grants related to
income) are reported in the Consolidated Statements of
Income under the same functional area as the corresponding
expenses. They are recognized as income over the periods
necessary to match them on a systematic basis to the costs
that are intended to be compensated. Government grants for
future expenses are recorded as deferred income.
Product-related expenses and losses from onerous con-
tracts – Provisions for estimated costs related to product war-
ranties are recorded in line item Cost of goods sold and servic-
es rendered at the time the related sale is recognized, and are
established on an individual basis, except for the standard
product business. The estimates reflect historic experience of
warranty costs, as well as information regarding product fail-
ure experienced during construction, installation or testing of
products. In the case of new products, expert opinions and in-
dustry data are also taken into consideration in estimating
product warranty provisions. Expected losses from onerous
contracts are recognized in the period when the current esti-
mate of total contract costs exceeds contract revenue.
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 economic benefits are probable and () Siemens in-
tends, and () has sufficient resources, to complete develop-
ment and to use or sell the asset. The costs capitalized include
the cost of materials, direct labour and other directly attribut-
able expenditure that serves to prepare the asset for use. Such
capitalized costs are included in line item Other intangible as-
sets as other internally generated intangible assets. Other de-
velopment costs are expensed as incurred. Capitalized devel-
opment 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. Gov-
ernment 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 or a group of cash-generating units rep-
resented 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
or the group of cash-generating units that is expected to bene-
fit from the synergies of the business combination. If the carry-
ing amount of the cash-generating unit or the group of cash-
generating units, to which the goodwill is allocated, exceeds its
recoverable amount, an impairment loss on goodwill allo
cated