Shareholders' Letter

in the balance sheet separately under current assets and liabilities. The assets or asset groups are
valued at the lower of their carrying amount and fair value less costs of disposal and any impairment
losses arising resulting from the initial classification are recorded in the income statement.
Assets classified as held for sale and disposal groups are no longer depreciated and amortised.
3.11 Impairment losses
Impairments of financial assets
As of each balance sheet date, the carrying amount of those financial assets for which changes in
fair value are not recognised in the income statement are reviewed for any objective indications
of impairment in value. An impairment loss is recognised where there is objective evidence of
impairment, such as where the borrower is in bankruptcy, in default or other significant financial
difficulties. The impairment of a financial asset which is recorded at amortised cost is calculated
as the difference between its carrying amount and the present value of estimated future cash
flows, discounted at the asset’s original effective interest rate. Available-for-sale financial assets
whose fair value is less than their acquisition cost for a prolonged period or to a significant degree
are considered to be value impaired. In the event of impairment, the losses are reclassified out of
equity and recognised as financial expense. As of each balance sheet date, significant financial
assets are individually reviewed for impairment. Impairment losses on trade and other receivables
are recorded in the form of specific valuation allowances which cover the anticipated default risk.
As regards lump-sum valuation allowances, financial assets are regrouped on the basis of similar
credit risk characteristics and reviewed on a collective basis for impairment in value; where applicable,
an allowance is raised. In determining the anticipated future cash flows of the portfolio, historic
default rates are taken into account in addition to the contractually agreed payment conditions.
Impairment losses on trade and other receivables are recognised as other operating
expenses. Impairment losses on other financial assets are recorded as financial expense.
In the event of impairment in the value of available-for-sale financial assets, the cumulative losses
which had been previously recognised in equity are reclassified from equity and expensed. If, at a
subsequent balance sheet date, the fair value objectively increases as a result of events occurring
after the impairment loss was recognised, the previously recognised impairment loss is reversed
in an equivalent amount. The reversal of impairment losses for financial assets accounted for at
amortised cost is recognised in the income statement. In the case of equity instruments classified
as available-for-sale, the recovery in value is recognised directly in equity.
Impairment of goodwill
For the purposes of the impairment test, goodwill is allocated to cash-generating units. The impairment
test is performed in the fourth quarter after completion of business planning. If there is any
indication during the year that goodwill may be impaired, the cash-generating unit is tested for
impairment at that time. An impairment loss is recognised if the recoverable amount of a cashgenerating
unit is lower than its equivalent carrying amount. The recoverable amount is the
greater of the fair value less costs to sell and the value in use. The method used to test impairment
is described in Note 24. Any impairment loss on goodwill recognised in prior periods for goodwill
may not be reversed in subsequent periods.
Impairment of property, plant and equipment and other intangible assets
If indications exist that the value of an asset may be possibly impaired, the recoverable amount
of the asset is determined. If the recoverable amount of an asset, which is the greater of the fair
value less cost to sell and the value in use, is less than its carrying amount, the carrying amount
is reduced to the recoverable amount.
3.12 Leases
Finance leases
A lease is recorded as a finance lease when substantially all of the risks and rewards incidental to
ownership of an asset are transferred. The asset is initially recorded at the lower of its fair value
and the present value of the minimum lease payments and is amortised over the lesser of the
asset’s useful life and the lease term. The interest component of the lease payments is recognised
as interest expense over the lease term using the effective interest method. Leases for land and
buildings are recorded separately if the lease payments can be reliably allocated accordingly. Gains