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3.6 Consolidated financial statements Notes to the consolidated financial statements
Cumulative other comprehensive income
The equity line item “Cumulative other comprehensive income”
includes changes in the equity of the Group that were not recognized in
the consolidated statement of income of the period, except those
resulting from investments by owners and distributions to owners.
Cumulative other comprehensive income includes foreign currency
translation adjustments, unrealized holding gains and losses on
available-for-sale financial assets and on derivative financial
instruments as well as the share of the other comprehensive income of
associates and joint ventures accounted for using the equity method.
Actuarial gains and losses are reported in retained earnings in the
period that they are recognized as other comprehensive income.
Accrued pension and similar obligations
The Group’s net obligation for defined benefit and other postretirement
benefit plans have been calculated for each plan using the projected
unit credit method as of the balance sheet date. A quarterly valuation
of pensions and health care obligations is performed on the basis of
updated interest rates and fair values of plan assets.
All actuarial gains and losses as of October 01, 2004, the date of
transition to IFRS, were recognized in equity. Actuarial gains and
losses that arise subsequent to October 01, 2004, as well as gains and
losses resulting from asset ceiling are recognized directly in equity and
presented in the statement of comprehensive income.
As far as the fair value of plan assets related to pensions or similar
obligations exceeds the corresponding obligation, the recognition of an
asset in respect to such surplus is limited. As far as in connection with
plan assets minimum funding requirements related to past service
exist, an additional liability may need to be recognized in case the
economic benefit of a surplus – already taking into account the
contributions to be made in respect of the minimum funding
requirements – is limited. The limit is determined by unrecognized past
service costs and the present value of any future refunds from the plan
or reductions in future contributions to the plan (asset ceiling).
Consolidated financial statements
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Service cost for pensions and other postretirement obligations are
recognized as an expense in income from operations, while interest
cost and the expected return on plan assets recognized as components
of net periodic pension cost are included in net financial
income/(expense) in the Group’s consolidated statement of income.
When benefits of a plan are improved, the portion of the increased
benefit relating to past service is recognized as an expense in income
from operations on a straight-line basis over the average period until
the benefits become vested. To the extent that the benefits vest
immediately, the expense is recognized immediately.
The Group’s obligations for contributions to defined contribution plans
are recognized as expense in income from operations as incurred.
The Group also maintains multi-employer plans. In principle, these
multi-employer plans contain defined benefit plans as well as defined
contribution plans. With respect to defined benefit multi-employer
plans these are accounted for in the same way as any other defined
benefit plan in case the required information is available. Otherwise
these plans are accounted for as defined contribution plans.
Provisions
Provisions are recognized when the Group has a present obligation as
a result of a past event which will result in a probable outflow of
economic benefits that can be reasonably estimated. The amount
recognized represents best estimate of the settlement amount of the
present obligation as of the balance sheet date. Expected
reimbursements of third parties are not offset but recorded as a
separate asset if it is virtually certain that the reimbursements will be
received. Where the effect of the time value of money is material,
provisions are discounted using a market rate.
A provision for warranties is recognized when the underlying products
or services are sold. The provision is based on historical warranty data
and a weighting of all possible outcomes against their associated
probabilities.