General Accounting Principles of the Combined Financial Statements
The significant provisions presented below on recognition and measurement have been applied uniformly for all accounting periods presented in these financial statements.
With the exception of goodwill, intangible assets are recognised at cost when acquired. If their useful life can be determined, they are generally amortised on a straight-line basis over their contractual term or their shorter economic useful life. Favourable contracts are amortised over the individual contractual term.
|in years||Useful life|
|Software||3 – 5|
|Trademarks||5 – 30|
|Customer relationships||4 – 21|
|Licenses||under 1 – 45|
|Leasehold interest||1 – 25|
|Permanent rights of use||2 – 30|
Internally generated intangible assets must be capitalised only if certain precisely defined prerequisites are met. In the Combined Financial Statements, this applies to internally developed software. Cost comprises all directly allocable costs necessary to prepare and produce the software products. In addition to external costs, this also encompasses internal personnel costs. Capitalised development expenses are amortised over the expected useful life of the newly developed software. Research costs are expensed in the period in which they arise.
Goodwill represents the excess of the cost of an acquisition over the acquirer's share of the net fair value of the net assets on the acquisition date. Such goodwill is allocated to intangible assets and is not amortised. Goodwill is measured at its original cost less cumulative impairments and assessed at least annually as part of an impairment test. Goodwill attributable to foreign entities is recognised in local currency and subject to currency translation. No reversals of impairment are carried out on goodwill.
Goodwill from the acquisition of an associate or a joint venture is included in the carrying amount of the investment in associates or joint ventures.
Property, Plant and Equipment
Property, plant and equipment is measured at cost less accumulated depreciation and cumulative impairment losses. The cost includes the expenses directly attributable to the acquisition. Borrowing costs are capitalised solely when material assets are produced which require more than twelve months of preparation for their intended use or sale. In the groups, this concerns warehouses and administrative buildings in particular. All other borrowing costs are expensed in the period in which they are incurred. Public investment subsidies received and free investment grants are considered by reducing the cost of the corresponding asset by the amount of the subsidy.
Depreciation is generally taken on a straight-line basis over the respective economic useful life. Residual carrying amounts and economic useful lives are reviewed at each balance sheet date and adjusted if necessary.
|in years||Useful life|
|Buildings||25 – 50|
|Investment properties||25 – 50|
|Leasehold improvements||7 – 15|
|Technical equipment and machinery||8 – 20|
|Motor vehicles||5 – 8|
|Other equipment, operating and office equipment||3 – 23|
Restoration obligations are included in the cost in the amount of the discounted settlement. These capitalised restoration costs are depreciated pro rata over the useful life of the asset. Maintenance expenses are recognised only if the recognition criteria for property, plant and equipment are satisfied. Gains and losses from disposals of assets are determined as the difference between the disposal proceeds and the carrying amounts and are recognised in profit or loss.
Impairment of Assets
Intangible assets with an indefinite useful life are not amortised, but instead tested at least annually for impairment. Intangible and tangible assets with a finite useful life are tested for impairment if pertinent events or changes in circumstances indicate that the carrying amount may no longer be recoverable. An impairment loss is recognised in the amount by which the carrying amount exceeds the recoverable amount. The recoverable amount is determined as the higher of the asset's fair value less costs to sell and its value in use. For impairment testing, assets are aggregated at the lowest level for which separate cash flows can be identified. As a rule, the individual store is the cash-generating unit (CGU) for impairment testing of the assets identified here, unless a smaller CGU could be determined or the asset was not allocable to a store.
Impairments of tangible and intangible assets, with the exception of goodwill, are reversed if the reasons for an impairment recognised in previous years no longer apply. For assets subject to depreciation/amortisation, impairments are reversed up to the carrying amount – less depreciation/amortisation – that would have been determined if no impairment loss had been recognised in previous years. For assets with indefinite useful lives, impairments are reversed up to a maximum of the carrying amount that would have been determined if no impairment loss had been recognised in previous years.
The carrying amount of an interest in an entity recognised using the equity method is always tested for impairment if there are objective indications that the interest could be impaired.
The impairment described in this section does not apply to recognised inventories, assets from employee benefits, financial assets under the scope of IAS 39 or deferred taxes.
Impairment of Goodwill
Goodwill is tested for impairment annually and additionally if there are indications of impairment. The goodwill allocated to a CGU is impaired if the recoverable amount is less than the carrying amount. An impairment may not be reversed if the reason for an impairment recognised in previous years no longer exists.
Goodwill is allocated by considering the units that should benefit from the synergies resulting from the business combination.
CGUs are formed at the lowest level at which goodwill is monitored for internal management purposes.
Investment properties comprise real estate (land, buildings or parts of buildings)
- held for generating rental income or to realise capital appreciation,
- which is not used for production or administrative purposes, and
- is also not to be sold in connection with ordinary business activities.
Investment properties are measured in accordance with the cost model at cost less accumulated depreciation and impairments. They are depreciated on a straight-line basis over their expected useful life and subjected to impairment testing if there are indications of impairment. Please see the notes on property, plant and equipment with respect to useful lives.
A mixed-use property is classified based on the portion of owner occupation. If this is more than five per cent, it is not classified as an investment property.
Other Financial Assets
Other financial assets within the scope of IAS 39 are assigned to one of the following categories depending on their intended use:
- "financial assets at fair value through profit or loss",
- "loans and receivables", or
- "available-for-sale financial assets".
The "financial investments held to maturity" category is not used.
Other financial assets are generally initially recognised at fair value. In the case of a financial asset that is not measured at fair value through profit or loss, the transaction costs that are directly attributable to the acquisition of the financial asset are included in the measurement. For financial assets in the "financial assets at fair value through profit or loss" category, associated transaction costs are recognised in profit or loss. Regular way purchases and sales of financial assets are measured at fair value as at the trade date.
The recognised value corresponds to the maximum credit risk.
Subsequent measurement depends on the classification of the financial assets:
a) Financial Assets at Fair Value Through Profit or Loss
Financial assets are assigned to this category if they were principally acquired with a short-term intent to sell or if they were designated as such by management. Derivatives belong to this category to the extent they do not qualify as hedges.
Financial assets in this category are recognised as current assets if they are either held for trading or will likely be realised within twelve months of the balance sheet date.
The fair value option has not been exercised.
Gains and losses from financial assets in this category, including interest and dividend income, are recognised in profit or loss in the period in which they arise.
Financial assets measured at fair value through profit or loss, such as derivatives with a positive fair value, are subsequently measured at fair value.
b) Loans and Receivables
Loans and other financial receivables (e.g. trade receivables) are classified as "loans and receivables". They are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. They are counted as current assets if their maturity is within twelve months of the balance sheet date. Otherwise, they are presented as non-current assets. Subsequent measurement is made at amortised cost using the effective interest method.
Gains and losses from financial assets recognised at amortised cost are recognised as amortisations or impairments in the net income/loss for the period.
c) Available-for-sale Financial Assets
Available-for-sale financial assets are non-derivative financial assets that were either allocated directly to this category or could not be allocated to any other category presented. Available-for-sale financial assets are generally subsequently measured at the fair value directly to equity. If no quoted price listed on an active market is available or the fair value cannot be measured reliably, these financial assets are measured at amortised cost.
Gains and losses from a change in the fair value of available-for-sale financial assets are recognised directly to equity, taking deferred taxes into account. Gains and losses are recognised only when the financial asset is derecognised or if the asset is impaired. Interest calculated using the effective interest method is recognised in the income statement.
d) Impairment of Financial Assets
At each balance sheet date, a test is carried out to see if there are objective indications of impairment to a financial asset or a group of financial assets. A need to recognise an impairment is considered to exist if the carrying amount of the financial asset or of a group of financial assets exceeds the future recoverable amount expected. For financial assets or a group of financial assets measured at amortised cost, the impairment is the difference between the carrying amount of the asset or group of financial assets and the present value of the expected future cash flows discounted at the original effective interest rate. An impairment results in a direct reduction of the carrying amount of all affected financial assets, with the exception of trade receivables, the carrying amount of which is reduced indirectly using an adjustment account. Changes in the carrying amount are recognised in profit or loss in the "other operating expenses" item. If a trade account receivable is classified as uncollectible, the impairment recognised in the adjustment account is eliminated against the gross receivable.
If the fair value of an available-for-sale financial asset is significantly or permanently below the asset's cost, this is considered an indicator that the asset is impaired. In such an event, the cumulative loss is reclassified from equity to profit or loss. This cumulative loss is the difference between the cost and the current fair value less previously recognised impairment losses. If the causes for impairment on a debt instrument (e.g. government bonds) no longer exist, the impairment is reversed through profit or loss. In contrast, for equity instruments (e.g. equity investments), the impairment is not reversed through profit or loss when the reasons for an impairment no longer exist.
e) Derecognition of Financial Assets
A financial asset is derecognised if the contractual rights to cash inflows from the asset expire or if the financial asset is transferred. The latter is the case if all substantial risks and rewards of ownership of the asset are transferred or if control over the asset is lost.
Trade receivables fall into the "loans and receivables" measurement category. They are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. Trade receivables are written down to the lower present value of the expected future cash flows if there are objective indications that the outstanding amounts receivable are not fully recoverable. Indicators of the existence of an impairment include a borrower with significant financial difficulties, an increased probability that a borrower will enter insolvency or other restructuring proceedings, as well as a breach of contract, such as default or delinquency in interest or principal payments.
Non-interest bearing or low-interest-bearing receivables with fixed terms of more than one year are discounted.
Receivables from other long-term investments, joint ventures and associates fall in the "loans and receivables" category and are measured at fair value on the acquisition date and subsequently measured at amortised cost using the effective interest method.
All other claims are recognised under other assets. All other assets are recognised at cost and written down to the lower recoverable amount when indications of impairment exist.
Inventories of raw materials, consumables and supplies as well as merchandise are generally measured at cost or the lower net realisable value. For the branch business, they are measured retrospectively using an appropriate discount on the selling prices.
Inventories in warehouses are measured at cost less all subsequent cost reductions. Direct administrative costs of merchandise procurement and central settlement are added to the cost. Allowances for inventory risks are determined as at the balance sheet date and accounted for on an individual basis.
The net realisable value used is calculated as the realisable sale proceeds anticipated less the completion and selling costs incurred up to sale. Merchandise is written down to the lower net realisable value item by item. If the reason for the write-down ceases to exist or the net realisable value increases, the write-down is reversed.
Work in progress and finished goods are recognised at cost or at the lower net realisable value. They include all costs directly allocable to the production process as well as appropriate portions of the production-related overheads. This includes production-related depreciation, pro-rata administrative costs and pro-rata social security costs. Borrowing costs are not normally recognised as part of cost because long-term production processes are necessary to produce inventories only in exceptional cases.
Cash and Cash Equivalents
Cash includes cash, cheques received and bank balances. Cash equivalents are short-term, highly liquid financial investments that can be converted into certain cash amounts at all times or within a maximum period of three months and that are subject to insignificant risk of changes in value.
Current and Deferred Taxes
Current tax expense and income are determined based on the respective domestic taxable earnings of the year (taxable income) using the domestic tax provisions applicable to the company. The liabilities or receivables of the groups' companies from current taxes are calculated based on the applicable tax rates of the countries in which the companies included in the Combined Financial Statements are domiciled. Uncertain income tax assets and liabilities are recognised as soon as their level of probability exceeds 50 per cent. Uncertain income tax positions are recognised using their most probable value.
Deferred taxes are determined using the liability method (balance sheet liabilities method). Accordingly, temporary differences in the carrying amounts of assets and liabilities recognised under IFRS in the Combined Financial Statements and the carrying amounts for tax purposes are generally recognised. In addition, deferred tax assets are recognised for tax loss carryforwards (taking into account a minimum taxation provision) and for interest carryforwards and realisation carryforwards for hidden liabilities from the transfer of obligations.
Deferred taxes are measured using the respective country-specific tax rates and tax laws that have been enacted or substantively enacted as at the balance sheet date and whose applicability is expected as at the date the deferred tax assets will be recovered or the deferred tax liabilities will be settled.
Deferred tax assets are recognised only to the extent to which it is probable that future taxable income of the same taxable entity at the level of the same taxation authority will be available, against which the temporary differences can be offset.
Expected future tax reductions from loss carryforwards, and interest carryforwards are capitalised if it is probable that sufficient taxable income will be generated in the foreseeable future or taxable temporary differences that will reverse in the future are available and against which the tax loss carryforwards can be offset in the period in question. The three-year plans for internal management purposes are used for the forecast of future tax results and taxable temporary differences. These forecasts are extrapolated to a five-year planning horizon.
Changes in deferred taxes in the balance sheet are recognised as deferred tax expense/income if the underlying item is not accounted for directly in equity. Deferred tax assets and tax liabilities are recognised directly in equity for the effects presented in equity.
Deferred tax assets and liabilities are not discounted.
Deferred tax assets and deferred tax liabilities are offset if these income tax assets and liabilities apply to the same taxation authority and to the same taxable entity.
Non-current Assets, Disposal Groups and Discontinued Operations Held for Sale
Non-current assets or groups of assets and liabilities are classified as held for sale if their carrying amount will largely be realised through a highly probable sale within the next twelve months or through an already completed sales transaction instead of continued business use. They are measured at the lower of the carrying amount and fair value less costs to sell. If non-current assets with a finite useful life are to be sold, they are no longer depreciated/amortised as at the date they are classified as held for sale.
These assets and liabilities are presented in the balance sheet separately in the items "non-current assets and disposal groups held for sale" or "liabilities from non-current assets and disposal groups held for sale". Related expenses and revenues are included in the result from continuing operations until disposal unless the disposal group qualifies for reporting as a discontinued operation.
The results of an entity's component are presented as a discontinued operation if this component represents a material business line or includes all activities in a geographical region. Results from discontinued operations are recognised in the period in which they arise and are presented separately in the income statement as "results from discontinued operations". The previous period's income statement is adjusted accordingly.
Consolidated companies have both defined contribution and defined benefit pension plans.
Consolidated companies contribute to defined contribution plans on the basis of a statutory or contractual obligation, or make voluntarily contributions to public or private external pension insurance plans. The consolidated companies have no additional payment obligations beyond the payment of the contributions. The contributions are recognised in personnel expenses when due. Prepayments of contributions are recognised as assets in that there is a right to repayment or reduction of future contribution payments.
A defined benefit plan is a pension scheme that stipulates the amount of pension benefits an employee will receive upon retirement. The amount is normally dependent on one or more factors such as age, length of service and salary. The provision for defined benefit plans recognised in the balance sheet (net pension obligation) corresponds to the present value of the defined benefit obligation (DBO) as at the balance sheet date less the fair value of plan assets. The DBO is calculated annually by independent actuarial experts using the projected unit credit method. The DBO is calculated by discounting the expected future cash outflows using the interest rate for the most highly rated corporate bonds denominated in the currency in which the benefits will also be paid, and whose terms correspond to those of the pension obligation.
Actuarial gains and losses based on experience adjustments and changes to actuarial assumptions are recognised in other comprehensive income and in retained earnings in the statement of comprehensive income.
Past service cost is recognised in profit or loss as soon as it is incurred.
The interest portion contained in the pension expenses consists of the interest cost on the DBO and the interest on plan assets. They are aggregated into a net interest component, which is presented in the financial result. The net interest component is determined by using the above interest rate.
The expected income from reimbursement rights against the trust associations is also reported under the financial result. It is likewise determined by using the above interest rate.
The other components of pension expenses are reported under personnel expenses.
Severance payments and similar payments in Italy ("Trattamento di Fine Rapporto" or "TFR") are non-recurring payments that must be paid due to labour law provisions in Austria and Italy upon termination of an employee as well as regularly upon retirement. As defined benefit pension plans, they are recognised in accordance with the above principles for accounting for such plans.
Retirement allowances are employee benefits that are paid under certain conditions when employees retire. Survivor benefits are payments based on length of service, which are made to the heirs of an employee upon the death of that employee. Since retirement allowances and survivor benefits are defined benefit plans, they are recognised in accordance with the above principles for accounting for defined benefit plans.
The provision for German partial and early retirement obligations is measured in accordance with the expert actuarial opinion of Hamburger Pensionsverwaltung e.G., Hamburg, based on the 2005 G actuarial tables of Prof. Klaus Heubeck, based on a reasonable discount rate. The refund claims for additional retirement contributions against the German Federal Employment Agency (Bundesagentur für Arbeit) are recognised under other assets. The provisions for additional retirement contributions from partial retirement obligations are allocated over the vesting period.
The provision for service anniversary bonuses corresponds to the full amount of the obligation and was determined using actuarial principles reflecting a reasonable fluctuation discount and discount rate. It is measured based on the 2005 G actuarial tables of Prof. Klaus Heubeck for the earliest possible retirement age for German statutory pension insurance.
The provision for holiday entitlements is measured at the daily rates or the average hourly rate expected for the subsequent year, including expected additional amounts (e.g., in-kind remuneration, holiday pay, Christmas bonus and employer contributions to capital-forming savings schemes) and social security contributions to be incurred.
Other provisions are recognised if there is a present legal or constructive obligation vis-à-vis third parties as a result of past events, whose settlement is expected to entail an outflow of resources embodying economic benefits and whose amount can be estimated with sufficient reliability.
They are measured using the best estimated value of the settlement amount. They are not offset against reimbursement claims. If the amount of the provision could be influenced by several possible events, the amount is estimated by weighting all potential events with their respective probabilities (calculation of an expected value). Non-current provisions are recognised using the discounted settlement amount as at the balance sheet date.
For rented properties, each location is analysed based on the following principles as to whether and in what amount another provision must be recognised from the lease:
- A provision for rental obligations is recognised for rented properties not used by the groups and for rented properties that are not subleased or are subleased below cost. For residual rental agreement terms of up to one year, the provision is measured using the nominal amount of the rent shortfall. For longer-term rental agreements, the provision is measured at the present value of the expected rent shortfall.
- A provision for onerous contracts is recognised for rented properties used by the groups if the location shows a sustained negative contribution margin. For residual rental agreement terms of up to one year, the provision is measured using the lower amount between negative contribution margins and expected rent shortfall taking into account future subleasing of the property. For longer-term rental agreements, the provision is measured at the present value of the nominal amount.
Other Financial Liabilities
Other financial liabilities within the scope of IAS 39 are assigned to one of the following categories in the groups, depending on their intended use:
- "financial liabilities held for trading",
- "financial liabilities at fair value through profit or loss" or
- "other financial liabilities".
Other financial liabilities in the "financial liabilities held for trading" and "financial liabilities at fair value through profit or loss" categories are initially recognised at fair value. Subsequent measurement is also at fair value.
Other financial liabilities in the "other financial liabilities" category, including borrowings, are initially recognised at fair value, including such transaction costs that are directly attributable to the issuance of the financial liability. During subsequent measurement, they are measured at amortised cost using the effective interest method, with the interest expense recognised using the effective interest rate.
Liabilities to banks and liabilities to other long-term investments are assigned to the "other financial liabilities" category.
The membership capital of RZF is presented under other financial liabilities because the members have the right to demand redemption of the shares.
Financial guarantee contracts are initially measured at fair value. The higher of the two following amounts is recognised based on the subsequent measurement: either the amount determined pursuant to the provisions governing provisions or the original amount less cumulative amortisation.
A financial liability is derecognised if its underlying obligation is satisfied, terminated or expired. If an existing financial liability is exchanged for another financial liability of the same creditor with substantially different contractual terms, or if the terms of an existing liability are changed significantly, such an exchange or change is treated as a derecognition of the original liability and a recognition of a new liability. The difference between the respective carrying amounts is recognised in net income/loss for the period.
Trade payables are initially measured at fair value. Subsequent measurement is made at amortised cost using the effective interest method.
Other liabilities are recognised at the repayment amount.
Contingent Liabilities and Assets
A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of future events not wholly within the control of the entity. Contingent liabilities also include present obligations that arise from past events for which no provision has been recognised because the outflow of resources embodying economic benefits is not probable or cannot be measured with sufficient reliability. If the chance of a possible outflow of resources embodying economic benefits is not remote, a disclosure is made in the notes to the financial statements. Contingent liabilities are recognised solely in connection with business combinations.
Contingent assets are not recognised, but instead only explained in the notes.
Lease agreements that transfer all substantial risks and rewards incidental to ownership of an asset are recognised as finance leases. Property, plant and equipment rented on the basis of finance leases is recognised at fair value or at the lower present value of the minimum lease payments as at the acquisition date. Such assets are depreciated on a straight-line basis over the expected useful life or over the shorter lease term if the transfer of ownership at the end of the lease term is not sufficiently certain. The present value of the payment obligations resulting from the future lease payments is presented under financial liabilities.
All other lease transactions in which the risks and rewards incidental to ownership of an asset are not substantially transferred are recognised as operating leases. Payments made or received in connection with an operating lease are generally recognised in the income statement on a straight-line basis over the term of the lease.
Accounting for Derivative Financial Instruments
Among other items, derivative financial instruments are presented under financial assets and financial liabilities in the Combined Financial Statements.
Derivative financial instruments are initially recognised at fair value as at the date the contract is concluded and measured at fair value in subsequent periods. The effect of changes in the fair value on profit or loss generally depends on whether the derivative was designated as a hedging instrument, and if so, on the hedged item.
The consolidated companies designate certain derivatives either as:
- hedges of the fair value of a recognised asset, liability or a fixed company obligation (fair value hedge) or
- hedges of the cash flows of a recognised asset, liability or a highly probable forecast transaction (cash flow hedge).
At the inception of the transaction, the hedging relationship between the hedging instrument and the underlying hedged item as well as the risk management objective and the underlying strategy for undertaking the hedge are documented. In addition, the effectiveness of the derivative is continually determined and documented from the inception of the hedging relationship.
a) Fair Value Hedge
The groups hedge against changes in the fair value of recognised assets, recognised liabilities, off-balance-sheet firm commitments and precisely defined portions of such assets, liabilities or firm commitments, if the change is attributable to a specific risk and can impact the profit or loss for the period. For fair value hedges, the carrying amount of a hedged item is adjusted by the gain or loss from the hedged item attributable to the hedged risk and the derivative financial instrument is remeasured at its fair value.
The changes in the fair value of derivatives that were designated for hedging the fair value of certain assets or liabilities and that must be classified as a fair value hedge are recognised in the income statement together with the changes to the fair value of this asset or liability attributable to the hedged risk.
A fair value hedge ceases to be recognised if the hedging instrument expires, is sold, becomes due or is exercised, or if the hedging transaction no longer satisfies the requirements for hedge accounting. Any adjustment to the carrying amount of a hedged financial instrument is amortised to profit and loss using the effective interest method.
Replacing or continuing a hedging instrument through another hedging instrument will in this case not constitute the expiration or termination of the hedging relationship if such a replacement or continuation is a part of the previously documented hedging strategy. The novation of a hedging instrument to a central counterparty also does not constitute an end to the hedging relationship if the hedging instrument was novated due to statutory requirements, on account of the novation the central counterparty becomes the contracting partner of all parties of a derivative agreement, and there are no changes (except for those necessitated by the novation) to the terms of the agreement underlying the original derivative.
b) Cash Flow Hedge
A hedge is classified as a cash flow hedge when it hedges against the risk of cash flow fluctuations that are attributable to a risk related to a recognised asset, a recognised liability or a highly probable forecast transaction, and that could have an effect on profit or loss for the period. The effective portion of changes in the fair value of derivatives that are designated to hedge the cash flow and represent qualified hedges is recognised in equity.
In contrast, the ineffective portion of the changes in value is recognised directly in the income statement.
Amounts recognised in equity are reclassified to profit or loss and reported as income or expenses in the period in which the hedged item has an effect on profit or loss (e.g. when the hedged future sale takes place).
If a hedging instrument expires, is sold, or the hedge no longer satisfies the requirements for a cash flow hedge, the cumulative gains or losses remain in equity and are recognised in the income statements only once the underlying transaction has occurred. If the forecast transaction is no longer expected to occur, the cumulative gain or loss that was recognised directly in equity must be recognised immediately in profit or loss.
Under the terms for fair value hedges mentioned in paragraph a) above, the replacement or continuation of a hedging instrument through another hedging instrument and the novation of a hedging instrument to a central counterparty as a result of existing or newly enacted statutory or regulatory provisions also do not constitute the expiration or termination of the hedging relationship in the case of cash flow hedges.
c) Derivatives that do not Qualify for Hedge Accounting
Certain derivative financial instruments are not hedging instruments within the meaning of a cash flow or fair value hedge. Changes in the fair value of these derivatives are recognised directly in the income statement.
Determination of Fair Value
The fair value of a specific asset or liability is the sale price of a hypothetical transaction (sale/transfer) conducted at arm's length between market participants on the primary or most advantageous market as at the measurement date.
Fair value is calculated using market, cost and revenue-based measurement models. The three-level measurement hierarchy is used for the underlying input factors: Level 1 inputs are unadjusted quoted prices and market prices in the primary or most advantageous active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 inputs are market data that can be observed, either directly or indirectly, over the full term of the asset or liability. Level 3 inputs are unobservable parameters (not market-based) and shall only be used if observable parameters are not available.
The fair value of derivatives traded in an active market is based on the quoted market price on the balance sheet date.
The fair value of interest rate swaps is calculated based on the present value of the estimated future cash flows.
The fair value of currency forwards is determined using the forward exchange rates as at the balance sheet date and discounted.
For trade receivables and payables, it is assumed that the nominal amount less allowances and any necessary discounting corresponds to the fair value.
The influence of credit risk is always taken into account when determining fair value.
Recognised capital market valuation techniques are used to determine the fair value of investment properties.
Revenue and Expense Recognition
Revenue from the sale of goods to wholesalers, retailers and individual customers is recognised once products have been delivered to a customer, the customer has accepted the goods, and the collectability of the resulting receivable is deemed sufficiently certain. Revenue is recognised net of trade discounts and rebates.
If there are customer loyalty programmes, the revenue is reduced by the fair value of the award credits expected to be redeemed. This deferred revenue is recognised when awards are provided.
Income from the rendering of services is recognised in accordance with the stage of completion in the ratio of the service provided to the service to be provided in the financial year the service is provided.
Revenue for travel extending beyond the balance sheet date is recognised pro rata and accounted for accordingly in the pro rata expenses.
Dividend income is recognised when the legal claim arises.
Interest income and expenses are recognised periodically using the effective interest method.