Å kodaAuto ANNUAL REPORT 2006 - Skoda Auto

1.3 Foreign currency translation
Functional and presentation currency
Items included in the financial statements of the Company are measured using the currency of the primary economic environment in
which the entity operates (‘the functional currency’). The financial statements are presented in CZK, which is the Company’s functional and
presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end
exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
1.4 Intangible assets
Purchased intangible assets are recorded at cost less amortisation and accumulated impairment losses. All research costs are recognised
as expenses when incurred. In accordance with IAS 38, all development costs of new Škoda models and other products are recognized as
intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and costs
can be measured reliably. These development costs are valued at cost of purchase or at own work cost. If the criteria for recognition as an
asset are not met, the expenses are recognised in the income statement in the year in which they are incurred. The right to use Volkswagen’s
tooling for new platforms is capitalised as an intangible asset. Own costs include all direct costs as well as an appropriate portion of
development-related overheads.
The costs are amortised using the straight-line method from the start of production over the expected life cycle of the models or components,
generally between 5–10 years. Amortisation recognised during the year is allocated to the relevant functions in the income statement.
Intangible assets are amortised applying the straight-line method over their estimated useful lives as follows:
– Development costs 5–10 years according to the product life cycle
– Software 3 years
– Royalties 8 years
– Other intangible fixed assets 5 years
Intangible assets not yet available for use are tested annually for impairment and carried at cost less accumulated impairment losses.
Government grants related to the purchase of intangible assets are deducted in order to arrive at the carrying amount of the relevant
intangible asset.
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