Siemens 2015 Annual Report Download - page 78

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Consolidated Financial Statements

NOTE 11 Goodwill
Fiscal Year
(in millions of €) 2015 2014
Cost
Balance at beginning of year 19,546 19,564
Translation differences and other 1,187 777
Acquisitions and purchase accounting adjustments 4,599 60
Dispositions and reclassifications to assets classified as held for disposal (261) (856)
Balance at year-end 25,071 19,546
Accumulated impairment losses and other changes
Balance at beginning of year 1,763 1,681
Translation differences and other 140 82
Impairment losses recognized during the period 35
Dispositions and reclassifications to assets classified as held for disposal (1) (5)
Balance at year-end 1,905 1,763
Carrying amount
Balance at beginning of year 17,783 17,883
Balance at year-end 23,166 17,783
As of October , , Siemens realigned its organizational and
reporting structure. Goodwill has been reallocated to the reor-
ganized reporting structure generally based on relative values.
The reallocation did not result in goodwill impairments.
The Siemens’ groups of cash-generating units to which good-
will is allocated are generally represented by a segment and for
Healthcare one level below the segment. Prior year disclosures
are based on the reporting structure before reorganization.
Siemens performs the mandatory annual impairment test
in the three months ended September . The recoverable
amounts for the annual impairment test  for Siemens’
groups of cash-generating units were generally estimated to be
higher than the carrying amounts. Key assumptions on which
Siemens based its determinations of the fair value less costs to
sell for the groups of cash-generating units include terminal
value growth rates up to . % in fiscal  and . % in fiscal
, respectively and after-tax discount rates of . % to . %
in fiscal  and . % to . % in fiscal . Where possible,
reference to market prices is made.
For the purpose of estimating the fair value less costs to sell of
the groups of cash-generating units, cash flows were projected
for the next five years based on past experience, actual operat-
ing results and management’s best estimate about future de-
velopments as well as market assumptions. The determined
fair value of the groups of cash-generating units is assigned to
level  of the fair value hierarchy.
The fair value less costs to sell is mainly driven by the terminal
value which is particularly sensitive to changes in the assump-
tions on the terminal value growth rate and discount rate. Both
assumptions are determined individually for each group of
cash-generating units. Discount rates are based on the weighted
average cost of capital (WACC) for the groups of cash-generat-
ing units (for SFS the discount rate represents cost of equity).
The discount rates are calculated based on a risk-free rate of in-
terest and a market risk premium. In addition, the discount rates
reflect the current market assessment of the risks specific to
each group of cash-generating units by taking into account spe-
cific peer group information on beta factors, leverage and cost
of debt. The parameters for calculating the discount rates are
based on external sources of information. The peer group is
subject to an annual review and adjusted, if necessary. Terminal
value growth rates take into consideration external macroeco-
nomic sources of data and industry specific trends.