Å kodaAuto ANNUAL REPORT 2006 - Skoda Auto

1.11 Provisions for employee benefits
The following types of long-term employee benefits are included in the provision for employee benefits:
– Bonuses for long-service awards and
– Retirement bonuses.
The entitlement to these benefits is usually conditional on the employee remaining in service for a certain service period, e.g. up to the
retirement age in the case of retirement bonuses or up to the moment of the completion the certain work anniversary of the employee.
The amount of provision corresponds to the present value of the other long-term employee benefits at the balance sheet date using the
projected unit credit method. These obligations are valued annually by independent qualified actuaries. Actuarial gains and losses arising
from changes in actuarial assumptions and calculations are charged or credited to income statement.
The present value of the other long-term employee benefits is determined by discounting the estimated future cash outflows using interest
rates of high-quality corporate bonds to the balance sheet date. If a market of such bonds does not exist, the Company uses the market
price of treasury bonds. The conditions and currency of these corporate or treasury bonds are consistent with the currency and conditions
of the particular other long-term employee benefits.
1.12 Other provisions
In accordance with IAS 37, provisions are recognised where a present obligation exists to third parties as a result of a past event; where
a future outflow of resources is probable; and where a reliable estimate of that outflow can be made. Future outflows are estimated with
respect to particular specific risks. Provisions not resulting in an outflow of resources in the year immediately following are recognised at
their settlement value discounted to the balance sheet date based on the effective interest method. Discounting is based on market
interest rates.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering
the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in
the same class of obligations may be small.
1.13 Liabilities
Non-current liabilities are recognized initially at fair value. Subsequently they are recorded at amortized cost in the balance sheet. Any
differences between proceeds (net of transaction costs) and the repayment amount and the redemption value are recognized in the
income statement over maturity period using the effective interest method. Current liabilities are recognized at their repayment or
settlement value.
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