Å kodaAuto ANNUAL REPORT 2006 - Skoda Auto

1.19 Segment reporting
A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that
are different from those of other business segments. A geographical segment is engaged in providing products or services within
a particular economic environment that are subject to risks and returns that are different from those of segments operating in other
economic environments.
1.20 Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal
the related actual results. The estimates and assumptions are continuously assessed by management. The estimates and assumptions are
based on historical experience and other factors, including the realistic assessment of future developments. The estimates and
assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year are discussed below.
Provision for warranty claims
The Group recognises provisions for warranty claims at the moment of sale. The amount of the provision for individual models is
determined on the basis of a professional estimate of the number of failures during the warranty (2–10 years) period and the single failure
costs, also considering specifics of particular countries. Changes in those presumptions can significantly influence the profit. These
estimates are revised annually based on historical data about the number of failures and their repair-costs. The amount of the provisions
for warranty claims is monitored during the year and the detailed analysis of the provision according to the single types, production years,
guarantee types and the sales regions is prepared at the year-end (Note 16).
Provision for disposal of end-of-life vehicles
The Group recognises the provision for disposal of end-of-life vehicles according to EU guideline no. 200/53/EG on the basis of the
following parameters:
– The registered cars in the country of the individual companies;
– The official statistics and expected costs for the car’s ecological scrapping; and
– The legal requirements valid in individual countries.
Uncertainty is caused by the cost of scrapping, cost of steel, other material, etc. The amount of provision for disposal of end-of-life
vehicles is disclosed in Note 16.
Useful life of fixed assets
The Group conducts its primary business activities within automotive sector that involves significant investments into fixed assets.
As a result, estimates of useful lives affecting allocation of depreciable amounts of fixed assets and changes of these estimates can
significantly influence the profits. The management reviews the useful lives at least at each financial year-end and, if expectations differ
from previous estimates, the changes are accounted for as a change in accounting estimate in accordance with IAS 8.
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