Å kodaAuto ANNUAL REPORT 2006 - Skoda Auto

1.11 Deferred income tax
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial
recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither
accounting nor taxable profit nor loss, it is not accounted for.
Deferred income tax is determined using tax rates and tax laws, that have been enacted by the balance sheet date and are expected to
apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are
recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be
utilised.
In accordance with IAS 12, deferred tax assets and liabilities are offset if the deferred tax assets and liabilities relate to income taxes levied
by the same taxation authority, and where the companies of the Group have the enforceable right to offset the current tax assets and
liabilities.
Deferred tax relating to items recognised directly in equity (for example the effective portion of changes in the fair value of financial
derivates that are designated and qualify as cash flow hedges) is also recognised directly in equity.
The Group recognizes deferred income tax assets on unused investment tax credits against deferred tax income in the income statement to
the extent that it is probable that future taxable profits will be available against which the unused tax credits can be utilized.
1.12 Inventories
Purchased inventories (raw materials, consumables, supplies and materials used in production, goods) are stated at the lower of cost and
net realisable value. Costs include purchase costs and other acquisition costs (e.g. transport, customs duty, and packaging).
Inventories generated from own production, i.e. work in progress and finished goods, are stated at lower of own production costs or net
realisable value. Own production costs include direct material, direct wages and production overheads. The administration overhead
expenses are not included in the valuation of work in progress and finished goods.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion less applicable
variable selling expenses. Net realisable value reflects all risks of obsolete and redundant raw materials and excessive spare parts.
A weighted-average calculation is used to account for the consumption of materials and for all sales.
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