Siemens 2012 Annual Report Download - page 240

1 A. To our Shareholders 49 C. Combined Management Report 21 B. Corporate Governance
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assessments of the time value of money. When a contract be-
comes onerous, the present obligation under the contract is
recognized as a provision and measured at the lower of the ex-
pected cost of fulfilling the contract and the expected cost of
terminating the contract as far as they exceed the expected
economic benefits of the contract. Additions to provisions and
reversals are generally recognized in the Consolidated State-
ments of Income. The present value of the recognized obliga-
tions associated with the retirement of property, plant and
equipment (asset retirement obligations) that result from the
acquisition, construction, development or normal use of an as-
set is added to the carrying amount of the related asset. The
additional carrying amount is depreciated over the useful life
of the related asset. Additions to and reductions from the pres-
ent value of asset retirement obligations that result from
changes in estimates are generally recognized by adjusting the
carrying amount of the related asset and provision. If the asset
retirement obligation is settled for other than the carrying
amount of the liability, the Company recognizes a gain or loss
on settlement.
Termination benefits – Termination benefits are recognized
in the period incurred and when the amount is reasonably es-
timable. Termination benefits in accordance with IAS , Em-
ployee Benefits, are recognized as a liability and an expense
when the entity has demonstrably committed itself, through a
formal termination plan or otherwise created a valid expecta-
tion, to either provide termination benefits as a result of an of-
fer made in order to encourage voluntary redundancy or termi-
nate employment before the normal retirement date.
Financial instruments – A financial instrument is any con-
tract that gives rise to a financial asset of one entity and a
financial liability or equity instrument of another entity. Finan-
cial assets of the Company mainly include cash and cash
equivalents, available-for-sale financial assets, trade receiv-
ables, loans receivable, finance lease receivables and deriva-
tive financial instruments with a positive fair value. Cash and
cash equivalents are not included within the category avail-
able-for-sale financial assets as these financial instruments are
not subject to fluctuations in value. Siemens does not make
use of the category held to maturity. Financial liabilities of the
Company mainly comprise notes and bonds, loans from banks,
trade payables, finance lease payables and derivative financial
instruments with a negative fair value. Siemens does not make
use of the option to designate financial assets or financial lia-
bilities at fair value through profit or loss at inception (Fair
Value Option). Based on their nature, financial instruments are
classified as financial assets and financial liabilities measured
at cost or amortized cost and financial assets and financial lia-
bilities measured at fair value and as receivables from finance
leases.
Financial instruments are recognized on the Consolidated State-
ments of Financial Position when Siemens becomes a party to
the contractual obligations of the instrument. Regular way pur-
chases or sales of financial assets, i.e. purchases or sales under
a contract whose terms require delivery of the asset within the
time frame established generally by regulation or convention in
the marketplace concerned, are accounted for at the trade date.
Initially, financial instruments are recognized at their fair val-
ue. Transaction costs directly attributable to the acquisition or
issue of financial instruments are only recognized in determin-
ing the carrying amount, if the financial instruments are not
measured at fair value through profit or loss. Finance lease re-
ceivables are recognized at an amount equal to the net invest-
ment in the lease. Subsequently, financial assets and liabilities
are measured according to the category – cash and cash equiv-
alents, available-for-sale financial assets, loans and receiv-
ables, financial liabilities measured at amortized cost or finan-
cial assets and liabilities classified as held for trading – to
which they are assigned.
Cash and cash equivalents – The Company considers all
highly liquid investments with less than three months maturi-
ty from the date of acquisition to be cash equivalents. Cash
and cash equivalents are measured at cost.
Available-for-sale financial assets – Investments in equity
instruments, debt instruments and fund shares are all classified
as available-for-sale financial assets and are measured at fair
value, if reliably measurable. Unrealized gains and losses, net of
applicable deferred income taxes, are recognized in line item
Other comprehensive income, net of tax. Provided that fair val-
ue cannot be reliably determined, Siemens measures available-
for-sale financial instruments at cost. This applies to equity in-
struments that do not have a quoted market price in an active
market, and decisive parameters cannot be reliably estimated to
be used in valuation models for the determination of fair value.
When available-for-sale financial assets incur a decline in fair
value below acquisition cost and there is objective evidence
that the asset is impaired, the cumulative loss that has been
recognized in equity is removed from equity and recognized in
the Consolidated Statements of Income. The Company consid-
ers all available evidence such as market conditions and pric-
es, investee-specific factors and the duration as well as the ex-
tent to which fair value is less than acquisition cost in evaluat-
ing potential impairment of its available-for-sale financial as-
sets. The Company considers a decline in fair value as objective
evidence of impairment, if the decline exceeds % of costs or
continues for more than six months. An impairment loss for
debt instruments is reversed in subsequent periods, if the rea-
sons for the impairment no longer exist.