Annual Report 2005 - Walter Meier

2.5 Significant accounting policies
Preparation of the consolidated financial statements requires management to make
evaluations and estimates which influence the measurement of assets, liabilities,
contingencies, income, and expenses at the time when they were recognized.
Assets and liabilities are recognized at the time when the future economic benefit
to, or obligation for, the Group becomes probable, and the related amounts can be
measured reliably. If, at a later point in time, such evaluations and estimates, which
were made by management based on their best knowledge and belief, turn out to
change, they will be adjusted in the reporting period in which the underlying facts
changed.
Net sales
Net sales comprise the invoiced amount for the delivery of goods and services
excluding value added tax and after deduction of outstanding credits and sales
allowances. Revenues from the delivery of goods are recognized as soon as material
elements of benefit and risk have been transferred to the purchaser. Revenues
from the performance of services are recognized pro rata depending on the services
performed up to balance sheet date in proportion to the total project. In the case
of long-term manufacturing projects, revenues are recognized according to the
progress of the project.
Research and development
All research and development costs arising during the year are expensed wherever
the conditions contained in IAS 38 for recognition of development costs in the
balance sheet are not fulfilled in all respects.
Cash
Cash includes cash on hand, postal accounts, and cash in banks.
Marketable securities
Marketable securities are recognized at market value.
Receivables
Within receivables, individually recognized risks are covered by appropriate
allowances. Other specific risks are covered by a lump sum allowance, whose value
is based on historical information.
Inventories
Inventories comprise raw, auxiliary, and consumable materials, semi-finished and
finished products, and work started but not completed. Inventories are stated at
the lower of average cost (purchase cost or standard manufacturing cost) or
net realizable value at balance sheet date. Production costs comprise materials,
labor, and overhead. Inventories are valued after deduction of necessary value
adjustments for slow-moving and obsolete items.
Property, plant, and equipment
Except for land, which is recorded at historical cost, all fixed assets are recorded at
purchase or production costs less accumulated depreciation and impairments.
Expenditures for repairs and maintenance (as well as for the acquisition of fixed
assets of insignificant value) are charged directly to the income statement. Larger
expenditures which serve to increase the value of a tangible asset are capitalized
and depreciated over the remaining useful life of the improved asset. Depreciation
on fixed assets is taken on a straight-line basis over their estimated useful lives, as
determined at the time of acquisition. The assets are periodically tested for impairment.
The depreciation periods for the Group’s most important categories of fixed assets
are:
Buildings 40 – 66 years
Production equipment 6 – 10 years
Tools 2 – 5 years
Office furniture and IT equipment 3 – 10 years
Vehicles 4 – 10 years
Property, plant, and equipment is derecognized in the balance sheet when sold or
permanently taken out of operation so that no future economic benefit can be
expected from it. Property, plant, and equipment that is intended for sale is valued
at the lower of fair value less selling costs or the carrying amount and reported
separately according to IFRS 5.
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WMH Financial Report 2005
Investments
Associated companies in which WMH Walter Meier Holding AG has a share are
carried in the balance sheet at a value determined by the equity method. These are
companies in which WMH generally holds 20–50% of the voting or capital rights
or over which it exercises significant influence.
Long-term loans are carried at cost or face value; any impairment is recognized by
means of a corresponding revaluation. Financial investments held to maturity are
recorded in the balance sheet at amortized cost.
All other financial investments (available for sale) are valued at fair value. Short-term
financial investments available for sale are reported in other receivables. Any
unrealized gains are credited to shareholders’ equity (net after tax) and shown in a
separate column in the statement of changes in equity.
Intangible assets
Goodwill represents the excess of the purchase costs at the date of the acquisition
over the fair value of that part acquired by WMH of the identifiable net assets of
the acquired subsidiary. Goodwill resulting from the acquisition of subsidiaries is
recognized as an intangible asset and tested at least annually, always on the same
date, for impairment on the basis of pre-defined cash generating units. In the
consolidated financial statements, the carrying value of goodwill is reported at
purchase cost less cumulative impairments.
Other intangible assets are assets with a limited useful life. These are recognized
at purchase or production cost and subsequently amortized linearly over the
expected useful life and tested for impairment should there be corresponding
indications. Service contracts acquired from third parties are normally charged to
the income statement over a period of three years.
Liabilities
Short-term liabilities comprise amounts due within less than twelve months, as
well as prepayments from customers in association with service contracts. Longterm
liabilities comprise financing arrangements with maturities in excess of one
year.
Long-term provisions
Provisions are created when the Group has a current legal or de facto obligation
resulting from past events and it is probable that a cash drain will be required to
cover the obligations and the amount can be reliably estimated.
Pension benefit plans
Most of the Group’s employees are eligible to participate in autonomous definedcontribution
or defined-benefit pension plans. These pension plans are generally
funded by equal payments from participating employees and the relevant
WMH Group companies, which take account of periodic recommendations by
independent qualified actuaries.
For defined-benefit plans, the pension accounting costs are assessed using the
projected-unit-credit method. Under this method, the cost of providing pensions is
charged periodically to the income statement so as to spread the regular cost evenly
over the service lives of the employees. The pension obligation is measured as the
present value of the estimated future cash outflows using interest rates of longterm
Swiss government bonds. Any actuarial gains or losses are spread over the
remaining service lives of the insured employees and charged to the income statement
when the cumulative balance exceeds the corridor of 10%. The contributions by
WMH Group companies to defined contribution pension plans are charged to the
income statement in the year to which they relate.
Leasing
Assets that are acquired under long-term leasing contracts (financial leasing) are
carried in the balance sheet at the net present value of the future lease payments
and depreciated along with other fixed assets. The related liabilities are included
with the respective long-term and short-term financial liabilities. Such lease payments
(operating leasing) in which a significant part of the ownership risk and benefit
remains with the lessor are charged to the income statement.