Siemens 2013 Annual Report Download - page 268

92 A. To our Shareholders 117 B. Corporate Governance 155 C. Combined Management Report
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future cash flows at a pretax rate that reflects current market
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 eco-
nomic benefits of the contract. Additions to provisions and re-
versals are generally recognized in the Consolidated Statements
of Income. The present value of the recognized obligations as-
sociated with the retirement of property, plant and equipment
(asset retirement obligations) that result from the acquisition,
construction, development or normal use of an asset is added to
the carrying amount of the related asset. The additional carry-
ing amount is depreciated over the useful life of the related as-
set. Additions to and reductions from the present 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 are provided as a result of an en-
tity ’s offer made in order to encourage voluntary redundancy
before the normal retirement date or from an entity ’s decision
to terminate the employment. Termination benefits in accor-
dance with IAS R, Employee Benefits, are recognized as a lia-
bility and an expense when the entity can no longer withdraw
the offer of those benefits.
Financial instruments – A financial instrument is any con-
tract that gives rise to a financial asset of one entity and a finan-
cial
liability or equity instrument of another entity. Financial
assets of the Company mainly include cash and cash equiva-
lents, available-for-sale financial assets, trade receivables,
loans receivable receivables from finance leases and derivative
financial instruments with a positive fair value. Cash and cash
equivalents are not included within the category available-for-
sale financial assets as these financial instruments are not sub-
ject 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, obligations under finance leases and derivative fi-
nancial instruments with a negative fair value. Siemens does
not make use of the option to designate financial assets or finan-
cial
liabilities at fair value through profit or loss at inception
(Fair Value Option). Based on their nature, financial instru-
ments are classified as financial assets and financial liabilities
measured at cost or amortized cost and financial assets and
financial
liabilities measured at fair value and as receivables
from finance leases.
Financial instruments are recognized on the Consolidated
Statements of Financial Position when Siemens becomes a
party to the contractual obligations of the instrument. Regular
way purchases or sales of financial assets, i.e. purchases or
sales under a contract whose terms require delivery of the as-
set 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 included in determining
the carrying amount, if the financial instruments are not mea-
sured at fair value through profit or loss. Receivables from
fi
nance leases are recognized at an amount equal to the net
investment in the lease. Subsequently, financial assets and
liabilities are measured according to the category – cash and
cash equivalents, available-for-sale financial assets, loans and
receivables, financial liabilities measured at amortized cost or
financial 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 classi-
fied as available-for-sale financial assets and are measured at
fair value, if reliably measurable. Unrealized gains and losses,
net of applicable deferred income tax expenses, are recognized
in line item Other comprehensive income, net of income taxes.
Provided that fair value cannot be reliably determined,
Siemens measures available-for-sale financial instruments at
cost. This applies to equity instruments that do not have a
quoted market price in an active market, and decisive parame-
ters cannot be reliably estimated to be used in valuation mod-
els 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 con-
siders all available evidence such as market conditions and
prices, investee-specific factors and the duration as well as
the extent to which fair value is less than acquisition cost
in evaluating potential impairment of its available-for-sale
financial assets. 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.