Master Document Accounting Manual_nach Versand 231204

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Accounting Manual Version:1.04

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Date:23. Dec. 04

AuthorIFRS Team

ACCOUNTING

MANUAL

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Tables of contentsDate:

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1. Introduction.........................................................................................................11.1. PREFACE.................................................................................................................11.2. USE OF THE ACCOUNTING MANUAL...................................................................21.3. DECLARATION OF SECRECY................................................................................1

2. Principles of IAS/IFRS.....................................................................................2-12.1. QUALITATIVE CHARACTERISTICS OF FINANCIAL STATEMENTS.................2-1

2.1.1. Understandability...........................................................................................2-12.1.2. Relevance......................................................................................................2-12.1.3. Reliability........................................................................................................2-12.1.4. Comparability.................................................................................................2-22.1.5. Constraints on relevant and reliable information............................................2-22.1.6. True and fair view...........................................................................................2-3

2.2. OVERALL CONSIDERATIONS.............................................................................2-32.2.1. Fair presentation and compliance with IASs/IFRSs.......................................2-32.2.2. Going concern................................................................................................2-52.2.3. Accrual basis of accounting...........................................................................2-62.2.4. Consistency of presentation...........................................................................2-62.2.5. Materiality and aggregation............................................................................2-62.2.6. Offsetting........................................................................................................2-72.2.7. Comparative information................................................................................2-8

2.3. CRITERIA FOR INCLUSION OF ITEMS IN THE FINANCIAL STATEMENT.......2-92.3.1. Assets............................................................................................................2-92.3.2. Liabilities......................................................................................................2-102.3.3. Equity...........................................................................................................2-122.3.4. Revenues and Expenses.............................................................................2-12

3. Balance Sheet..................................................................................................3-13.1. PRESENTATION OF BALANCE SHEET..............................................................3-1

3.1.1. Maturity..........................................................................................................3-13.1.2. Current assets................................................................................................3-13.1.3. Non-current assets.........................................................................................3-13.1.4. Current liabilities.............................................................................................3-13.1.5. Non-current liabilities......................................................................................3-23.1.6. GFC standard form........................................................................................3-23.1.7. General Chart of Accounts - balance sheet accounts....................................3-2

3.2. TWO-STEP MEASUREMENT...............................................................................3-23.2.1. measurement at recognition...........................................................................3-23.2.2. measurement after recognition......................................................................3-2

3.3. VALUATION PRINCIPLES....................................................................................3-23.3.1. Historical Cost................................................................................................3-23.3.2. Fair value.......................................................................................................3-23.3.3. Recoverable amount......................................................................................3-3

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3.4. BALANCE SHEET ITEMS...............................................................................3.4.1-13.4.1. Property, Plant and Equipment................................................................3.4.1-13.4.2. Finance lease...........................................................................................3.4.2-13.4.3. Investment property.................................................................................3.4.3-13.4.4. Goodwill...................................................................................................3.4.4-13.4.5. Other Intangible Assets............................................................................3.4.5-13.4.6. Investments..............................................................................................3.4.6-13.4.7. Deferred Taxes........................................................................................3.4.7-13.4.8. long-term marketable securities...............................................................3.4.8-13.4.9. Hedge Accounting....................................................................................3.4.9-13.4.10. Inventories..............................................................................................3.4.10-13.4.11. Trade receivables...................................................................................3.4.11-13.4.12. Marketable securities.............................................................................3.4.12-13.4.13. Current tax receivables..........................................................................3.4.13-13.4.14. Other current assets...............................................................................3.4.14-13.4.15. Cash and Cash Equivalents...................................................................3.4.15-13.4.16. Equity attributable to equity holders of the parent..................................3.4.16-13.4.17. Minority interest......................................................................................3.4.17-13.4.18. Long-term borrowings............................................................................3.4.18-13.4.19. Deferred taxes (see 3.4.7.)....................................................................3.4.19-13.4.20. Long-term provisions..............................................................................3.4.20-13.4.21. Trade Payables......................................................................................3.4.21-13.4.22. Short-term borrowings............................................................................3.4.22-13.4.23. Current portion of long-term borrowings (see 3.4.18.)...........................3.4.23-13.4.24. Short-term provisions.............................................................................3.4.24-13.4.25. Current tax payable (see 3.4.13.)..........................................................3.4.25-13.4.26. Other Liabilities......................................................................................3.4.26-1

4. Income Statement............................................................................................4-14.1. PRESENTATION OF INCOME STATEMENT.......................................................4-1

4.1.1. Obligatory elements.......................................................................................4-14.1.2. Particularities..................................................................................................4-34.1.3. GFC standard form........................................................................................4-44.1.4. General Chart of Accounts - income and expense accounts.........................4-44.1.5. Cost departments...........................................................................................4-5

4.2. DEFINITION OF ELEMENTS OF INCOME STATEMENT..............................4.1.5-14.2.1. Revenues.................................................................................................4.2.1-14.2.2. Cost of sales............................................................................................4.2.2-14.2.3. Sales and service expenses....................................................................4.2.3-14.2.4. Research and development expenses.....................................................4.2.4-14.2.5. General administrative expenses.............................................................4.2.5-14.2.6. Other income............................................................................................4.2.6-14.2.7. Other expenses........................................................................................4.2.7-14.2.8. Financial results.......................................................................................4.2.8-14.2.9. Taxes on income......................................................................................4.2.9-1

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5. Cash Flow Statement...................................................................................5.1-15.1. PRESENTATION OF CASH FLOW STATEMENT.............................................5.1-1

5.1.1. Condensed version.....................................................................................5.1-15.1.2. Full version..................................................................................................5.1-15.1.3. WAG standard form....................................................................................5.1-1

5.2. CASH FLOW FROM OPERATING ACTIVITIES................................................5.2-15.3. CASH FLOW FROM INVESTING ACTIVITIES..................................................5.3-15.4. CASH FLOW FROM FINANCING ACTIVITIES..................................................5.4-15.5. DEFINITION OF CASH FUNDS.........................................................................5.5-15.6. SPECIAL EXAMPLES........................................................................................5.6-1

6. Changes in Equity...........................................................................................6-16.1. PRESENTATION OF CHANGES IN EQUITY.......................................................6-1

6.1.1. Elements........................................................................................................6-16.1.2. GFC standard form........................................................................................6-1

6.2. SHARE CAPITAL...................................................................................................6-16.3. CAPITAL RESERVE..............................................................................................6-16.4. REVENUE RESERVES.........................................................................................6-26.5. REVALUATION SURPLUS....................................................................................6-26.6. FAIR VALUE RESERVE........................................................................................6-26.7. EXCHANGE DIFFERENCES................................................................................6-26.8. OTHER NEUTRAL CHANGES..............................................................................6-36.9. RETAINED EARNINGS.........................................................................................6-36.10. TREASURY SHARES............................................................................................6-36.11. EXAMPLES............................................................................................................6-4

AttachmentsList of abbreviation

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IntroductionDate:

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1. Introduction

1.1. PREFACEWith the decision of our shareholder for a potential IPO, it was necessary to restructure our existing accounting system to be ready to go public. We initiated a global project with the following goals and subgoals as it can be read in the project guide:

"The project team understands the goal to bring the COMPANY Group to a comparable level with similar companies listed on the stock exchange. By using IFRS for the financial closing, the COMPANY Group will have the basis to achieve efficient integrated internal and external reporting based on uniform systems. The realization of this primary goal requires a fundamental change to a standardization and uniformization of the IT-systems on a Group level. Therefore the COMPANY Group will be able to fulfil the requirements of the capital market.

To reach these ambitious goals especially regarding the time available the project team will focus on results that are pragmatic and can be put into action realistically. This is valid for all tasks as well as the preparation work, which has to be done to guarantee a smooth and fast implementation.

In order to make the COMPANY Group fit for the stock exchange the focus of this project has been put deliberately on the development of an adequate accounting system in general for a public company and not only on the implementation of the international financial reporting standard IFRS as the basis for financial statements.

Based on the above the following primary goals are defined:

- Conversion to internationally accepted financial reporting standards. The IFRS are the absolute basis for all further project activities and create thereby a uniform basis for definitions.

- The integration of all systems concerned means internal is equal to external (there is no longer a difference between the internal reporting system and the external reporting system).

Reporting of actual and budget figures will follow the uniform frame in order to avoid time-consuming reconciliations. The uniform data definitions, format of the reporting, etc. will also be used for the different periodical reports (monthly, quarterly or yearly closings).

In addition to the above the following sub goals have been defined:

- To improve the reliability and comparability of financial data during the year.

- Automatisation of data flows.

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- Adaptation of the reporting system to the COMPANY Group management structure (e.g. reporting of segments, lead company structure, strategic business fields).

- Qualification of the financial organization in order to fulfil the requirements of IFRS.

- Establishment of a uniform Group data pool for the internal and the external reporting.

- Improvement and speeding up of the processes for accounting, reporting and analysis.

- Further development and integration of the existing risk management systems."

The now published Accounting Manual is the first and most important milestone on our way of providing an accounting system adequate for a public company.

1.2. USE OF THE ACCOUNTING MANUALThe Accounting Manual was generated to give you as the accountants and bookkeepers of the COMPANY Group a guideline on how to book under IFRS.

This Accounting Manual is prepared as a loose-leaf edition. The current version is shown in the heading line (see above). Version 1.04 means first version in 2004. If you go through the Manual you will see that the page numbers are linked to the chapters / sections. The numbers behind the dash are the continuing page numbers within one section. If there is a change or a new topic which is not yet included, the whole chapter can be substituted by a new one without destroying the page number structure of the whole document.

There will only be an English version of the Accounting Manual because English was defined as the common language of the Group. Translations of the Accounting Manual into German, Spanish or any other languages will not be provided.

Although the language is English, the format of the numbers and figures is continental European. The separators for thousands are a dot (.), those for the decimal places are a comma (,). One thousand two-hundred eighty euros and forty-nine cents will be presented as 1.280,49.

The structure of the Accounting Manual was built up in accordance with the basic reporting documents (balance sheet, income statement, cash flow statement and statement of changes in equity (see attachments 1-4)). The tables of contents give an overview and should ease the search for a special topic. Even within each section you will find a certain structure which starts with definition, recognition, presentation in the financial statements, worksheet (if applicable) and ends with some typical business transactions.

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The attached Excel files are the most relevant worksheets. Some of them are only for additional help (e.g. attachment 5 – General Group Chart of Accounts or attachment 9 – Sales report structure); some of them have to be filled out for the reporting periods as defined in the Accounting Manual (e.g. attachment 8a – tax reconciliation).

This Accounting Manual is a living document. To maintain a high quality level, your comments are very much appreciated. If you do not find a special topic in this Accounting Manual which is most relevant to you, please inform GFC. During the business year 2005, new parts of the Accounting Manual will be generated, for example a definition of the closing procedure for every reporting period. New editions will then be sent out.

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Declaration of secrecyDate:

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1.3. DECLARATION OF SECRECY

Secrecy Commitment

to

COMPANY Construction Equipment AG Preußenstraße 41

80809 München

- hereafter referred to as “WAG” -

Conversion to IFRS/ Accounting Manual

Dear Sirs,

I am employed as ………………… at the COMPANY Company mentioned herein below and participate in the WAG project “Conversion to IFRS”.

1) I therefore agree to keep strictly confidential all information concerning the project, the Accounting Manual prepared and any other documents from WAG, my employer or any other company of the COMPANY Group of companies, which I may acquire during my work for the project and not to disclose such information to others without the prior written consent of WAG, nor to use such information for own purposes.

2) Such confidential information may include business and industrial secrets, commercial, economical, technical information and other internal knowledge.

3) I agree to use such information exclusively within my scope of employment and for the rightful fulfilment of my duties there under and shall disclose such information to my colleagues and superiors only on a need to know basis.

4) The obligations of secrecy hereunder shall not apply to information which are generally available to the public or which disclosure would obviously be of no harm to the COMPANY Group of companies.

5) All documents, notes and copies containing confidential information as defined hereinabove shall be delivered by me to WAG at any time upon WAG’s simple request. Any right of retention shall be excluded.

6) I acknowledge and agree that in case of my breach of the obligations hereunder I will be liable for damages and injunctive or other equitable relief. Such breach will also be followed by consequences for my employment.

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7) The obligations under this commitment shall survive the termination of my employment with the COMPANY company named herein below.

8) Any provisions of this Agreement which may be deemed invalid, illegal or unenforceable, shall not in anyway affect the enforceability or legality of the remaining provisions hereof.

……, the………….day of…………… ………………………………………. Name, signature

……………………………………….(COMPANY Company)

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Principles of IFRS / IASDate:

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2. Principles of IAS/IFRS

2.1. QUALITATIVE CHARACTERISTICS OF FINANCIAL STATEMENTSQualitative characteristics are the attributes that make the information provided in financial statements useful to users. The four principal qualitative characteristics are understandability, relevance, reliability and comparability.

2.1.1. UnderstandabilityAn essential quality of the information provided in financial statements is that it is readily understandable by users. For this purpose, users are assumed to have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence. However, information about complex matters that should be included in the financial statements because of its relevance to the economic decision-making needs of users should not be excluded merely on the grounds that it may be too difficult for certain users to understand.

2.1.2. RelevanceTo be useful, information must be relevant to the decision-making needs of users. Information has the quality of relevance when it influences the economic decisions of users by helping them evaluate past, present or future events or confirming, or correcting, their past evaluations.

The predictive and confirmatory roles of information are interrelated. For example, information about the current level and structure of asset holdings has value to users when they endeavour to predict the ability of the enterprise to take advantage of opportunities and its ability to react to adverse situations. The same information plays a confirmatory role in respect of past predictions about, for example, the way in which the enterprise would be structured or the outcome of planned operations.

Information about financial position and past performance is frequently used as the basis for predicting future financial position and performance and other matters in which users are directly interested, such as dividend and wage payments, security price movements and the ability of the enterprise to meet its commitments as they fall due. To have predictive value, information need not be in the form of an explicit forecast. The ability to make predictions from financial statements is enhanced, however, by the manner in which information on past transactions and events is displayed. For example, the predictive value of the income statement is enhanced if unusual, abnormal and infrequent items of income or expense are separately disclosed.

2.1.3. ReliabilityTo be useful, information must also be reliable. Information has the quality of reliability when it is free from material error and bias and can be depended upon by users to represent faithfully that which it either purports to represent or could reasonably be expected to represent.

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Information may be relevant but so unreliable in nature or representation that its recognition may be potentially misleading. For example, if the validity and amount of a claim for damages under a legal action are disputed, it may be inappropriate for the enterprise to recognize the full amount of the claim in the balance sheet, although it may be appropriate to disclose the amount and circumstances of the claim.

2.1.4. ComparabilityUsers must be able to compare the financial statements of an enterprise through time in order to identify trends in its financial position and performance. Users must also be able to compare the financial statements of different enterprises in order to evaluate their relative financial position, performance and changes in financial position. Hence, the measurement and display of the financial effect of like transactions and other events must be carried out in a consistent way throughout an enterprise and over time for that enterprise and in a consistent way for different enterprises.

An important implication of the qualitative characteristic of comparability is that users be informed of the accounting policies employed in the preparation of the financial statements, any changes in those policies and the effects of such changes. Users need to be able to identify differences between the accounting policies for like transactions and other events used by the same enterprise from period to period and by different enterprises. Compliance with International Accounting Standards, including the disclosure of the accounting policies used by the enterprise, helps to achieve comparability.

The need for comparability should not be confused with mere uniformity and should not be allowed to become an impediment to the introduction of improved accounting standards. It is not appropriate for an enterprise to continue accounting in the same manner for a transaction or other event if the policy adopted is not in keeping with the qualitative characteristics of relevance and reliability. It is also inappropriate for an enterprise to leave its accounting policies unchanged when more relevant and reliable alternatives exist.

Because users wish to compare the financial position, performance and changes in financial position of an enterprise over time, it is important that the financial statements show corresponding information for the preceding periods.

2.1.5. Constraints on relevant and reliable informationTimelinessIf there is undue delay in the reporting of information it may lose its relevance. Management may need to balance the relative merits of timely reporting and the provision of reliable information. To provide information on a timely basis it may often be necessary to report before all aspects of a transaction or other event are known, thus impairing reliability. Conversely, if reporting is delayed until all aspects are known, the information may be highly reliable but of little use to users who have had to make decisions in the interim. In achieving a balance between relevance and reliability, the overriding consideration is how best to satisfy the economic decision-making needs of users.

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Balance between Benefit and CostThe balance between benefit and cost is a pervasive constraint rather than a qualitative characteristic. The benefits derived from information should exceed the cost of providing it. The evaluation of benefits and costs is, however, substantially a judgmental process. Furthermore, the costs do not necessarily fall on those users who enjoy the benefits. Benefits may also be enjoyed by users other than those for whom the information is prepared; for example, the provision of further information to lenders may reduce the borrowing costs of an enterprise. For these reasons, it is difficult to apply a cost-benefit test in any particular case. Nevertheless, standard-setters in particular, as well as the preparers and users of financial statements, should be aware of this constraint.

Balance between Qualitative CharacteristicsIn practice a balancing, or trade-off, between qualitative characteristics is often necessary. Generally the aim is to achieve an appropriate balance among the characteristics in order to meet the objective of financial statements. The relative importance of the characteristics in different cases is a matter of professional judgment.

2.1.6. True and fair viewFinancial statements are frequently described as showing a true and fair view of, or as presenting fairly, the financial position, performance and changes in financial position of an enterprise. Although this Framework does not deal directly with such concepts, the application of the principal qualitative characteristics and of appropriate accounting standards normally results in financial statements that convey what is generally understood as a true and fair view of, or as presenting fairly such information.

2.2. OVERALL CONSIDERATIONS2.2.1. Fair presentation and compliance with IASs/IFRSs

Financial statements shall present fairly the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework. The application of IFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation.

An entity whose financial statements comply with IFRSs shall make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with IFRSs unless they comply with all the requirements of IFRSs.

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In virtually all circumstances, a fair presentation is achieved by compliance with applicable IFRSs. A fair presentation also requires an entity: (a) to select and apply accounting policies in accordance with IAS 8

Accounting Policies, Changes in Accounting Estimates and Errors. IAS 8 sets out a hierarchy of authoritative guidance that management considers in the absence of a Standard or an Interpretation that specifically applies to an item.

(b) to present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information.

(c) to provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance.

Inappropriate accounting policies are not rectified either by disclosure of the accounting policies used or by notes or explanatory material.

In the extremely rare circumstances in which management concludes that compliance with a requirement in a Standard or an Interpretation would be so misleading that it would conflict with the objective of financial statements set out in the Framework, the entity shall depart from that requirement in the manner set out in the following paragraph if the relevant regulatory framework requires, or otherwise does not prohibit, such a departure.

When an entity departs from a requirement of a Standard or an Interpretation in accordance with the paragraph before, it shall disclose:(a) that management has concluded that the financial statements present

fairly the entity's financial position, financial performance and cash flows;(b) that it has complied with applicable Standards and Interpretations, except

that it has departed from a particular requirement to achieve a fair presentation;

(c) the title of the Standard or Interpretation from which the entity has departed, the nature of the departure, including the treatment that the Standard or Interpretation would require, the reason why that treatment would be so misleading in the circumstances that it would conflict with the objective of financial statements set out in the Framework, and the treatment adopted; and

(d) for each period presented, the financial impact of the departure on each item in the financial statements that would have been reported in complying with the requirement.

When an entity has departed from a requirement of a Standard or an Interpretation in a prior period, and that departure affects the amounts recognised in the financial statements for the current period, it shall make the disclosures set out in paragraph above.

The Paragraph before applies, for example, when an entity departed in a prior period from a requirement in a Standard or an Interpretation for the measurement of assets or liabilities and that departure affects the measurement of changes in assets and liabilities recognised in the current period's financial statements.

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In the extremely rare circumstances in which management concludes that compliance with a requirement in a Standard or an Interpretation would be so misleading that it would conflict with the objective of financial statements set out in the Framework, but the relevant regulatory framework prohibits departure from the requirement, the entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing:(a) the title of the Standard or Interpretation in question, the nature of the

requirement, and the reason why management has concluded that complying with that requirement is so misleading in the circumstances that it conflicts with the objective of financial statements set out in the Framework; and

(b) for each period presented, the adjustments to each item in the financial statements that management has concluded would be necessary to achieve a fair presentation.

For the purpose of paragraphs above, an item of information would conflict with the objective of financial statements when it does not represent faithfully the transactions, other events and conditions that it either purports to represent or could reasonably be expected to represent and, consequently, it would be likely to influence economic decisions made by users of financial statements. When assessing whether complying with a specific requirement in a Standard or an Interpretation would be so misleading that it would conflict with the objective of financial statements set out in the Framework, management considers: (a) why the objective of financial statements is not achieved in the particular

circumstances; and (b) how the entity's circumstances differ from those of other entities that

comply with the requirement. If other entities in similar circumstances comply with the requirement, there is a rebuttable presumption that the entity's compliance with the requirement would not be so misleading that it would conflict with the objective of financial statements set out in the Framework.

2.2.2. Going concernWhen preparing financial statements, management should make an assessment of an enterprise’s ability to continue as a going concern. Financial statements should be prepared on a going concern basis unless management either intends to liquidate the enterprise or to cease trading, or has no realistic alternative but to do so. When management is aware, in making its assessment, of material uncertainties related to events or conditions which may cast significant doubt upon the enterprise’s ability to continue as a going concern, those uncertainties should be disclosed. When the financial statements are not prepared on a going concern basis, that fact should be disclosed, together with the basis on which the financial statements are prepared and the reason why the enterprise is not considered to be a going concern.

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In assessing whether the going concern assumption is appropriate, management takes into account all available information for the foreseeable future, which should be at least, but is not limited to, twelve months from the balance sheet date. The degree of consideration depends on the facts in each case. When an enterprise has a history of profitable operations and ready access to financial resources, a conclusion that the going concern basis of accounting is appropriate may be reached without detailed analysis. In other cases, management may need to consider a wide range of factors surrounding current and expected profitability, debt repayment schedules and potential sources of replacement financing before it can satisfy itself that the going concern basis is appropriate.

2.2.3. Accrual basis of accountingAn enterprise should prepare its financial statements, except for cash flow information, under the accrual basis of accounting.

Under the accrual basis of accounting, transactions and events are recognized when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate. Expenses are recognized in the income statement on the basis of a direct association between the costs incurred and the earning of specific items of income (matching). However, the application of the matching concept does not allow the recognition of items in the balance sheet which do not meet the definition of assets or liabilities.

2.2.4. Consistency of presentationThe presentation and classification of items in the financial statements should be retained from one period to the next unless:(a) a significant change in the nature of the operations of the enterprise or a

review of its financial statement presentation demonstrates that the change will result in a more appropriate presentation of events or transactions; or

(b) a change in presentation is required by an International Accounting Standard or an Interpretation of the Standing Interpretations Committee

A significant acquisition or disposal, or a review of the financial statement presentation, might suggest that the financial statements should be presented differently. Only if the revised structure is likely to continue, or if the benefit of an alternative presentation is clear, should an enterprise change the presentation of its financial statements. When such changes in presentation are made, an enterprise reclassifies its comparative information. A change in presentation to comply with national requirements is permitted as long as the revised presentation is consistent with the requirements of this Standard.

2.2.5. Materiality and aggregationEach material item should be presented separately in the financial statements. Immaterial amounts should be aggregated with amounts of a similar nature or function and need not be presented separately.

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Financial statements result from processing large quantities of transactions which are structured by being aggregated into groups according to their nature or function. The final stage in the process of aggregation and classification is the presentation of condensed and classified data which form line items either on the face of the financial statements or in the notes. If a line item is not individually material, it is aggregated with other items either on the face of the financial statements or in the notes. An item that is not sufficiently material to warrant separate presentation on the face of the financial statements may nevertheless be sufficiently material that it should be presented separately in the notes.

In this context, information is material if its non-disclosure could influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size and nature of the item judged in the particular circumstances of its omission. In deciding whether an item or an aggregate of items is material, the nature and the size of the item are evaluated together. Depending on the circumstances, either the nature or the size of the item could be the determining factor. For example, individual assets with the same nature and function are aggregated even if the individual amounts are large. However, large items which differ in nature or function are presented separately.

Materiality provides that the specific disclosure requirements of International Accounting Standards need not be met if the resulting information is not material.

2.2.6. OffsettingAssets and liabilities should not be offset except when offsetting is required or permitted by another International Accounting Standard.

Items of income and expense should be offset when, and only when: (a) an International Accounting Standard requires or permits it; or (b) gains, losses and related expenses arising from the same or similar

transactions and events are not material. Such amounts should be aggregated.

It is important that both assets and liabilities, and income and expenses, when material, are reported separately. Offsetting in either the income statement or the balance sheet, except when offsetting reflects the substance of the transaction or event, detracts from the ability of users to understand the transactions undertaken and to assess the future cash flows of the enterprise. The reporting of assets net of valuation allowances, for example obsolescence allowances on inventories and doubtful debts allowances on receivables, is not offsetting.

IAS 18 Revenue defines the term revenue and requires it to be measured at the fair value of consideration received or receivable, taking into account the amount of any trade discounts and volume rebates allowed by the enterprise. An enterprise undertakes, in the course of its ordinary activities, other transactions which do not generate revenue but which are incidental to the main revenue generating activities. The results of such transactions are presented, when this presentation reflects the substance of the transaction or

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event, by netting any income with related expenses arising on the same transaction. For example:

(a) gains and losses on the disposal of non-current assets, including investments and operating assets, are reported by deducting from the proceeds on disposal the carrying amount of the asset and related selling expenses;

(b) expenditure that is reimbursed under a contractual arrangement with a third party (a sub-letting agreement, for example) is netted against the related reimbursement; and

(c) extraordinary items may be presented net of related taxation and minority interest with the gross amounts shown in the notes.

In addition, gains and losses arising from a group of similar transactions are reported on a net basis, for example foreign exchange gains and losses or gains and losses arising on financial instruments held for trading purposes. Such gains and losses are, however, reported separately if their size, nature or incidence is such that separate disclosure is required by IAS 8 Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies.

2.2.7. Comparative informationUnless an International Accounting Standard permits or requires otherwise, comparative information should be disclosed in respect of the previous period for all numerical information in the financial statements. Comparative information should be included in narrative and descriptive information when it is relevant to an understanding of the current period’s financial statements.

In some cases narrative information provided in the financial statements for the previous period(s) continues to be relevant in the current period. For example, details of a legal dispute, the outcome of which was uncertain at the last balance sheet date and is yet to be resolved, are disclosed in the current period. Users benefit from information that the uncertainty existed at the last balance sheet date, and the steps that have been taken during the period to resolve the uncertainty.

When the presentation or classification of items in the financial statements is amended, comparative amounts should be reclassified, unless it is impracticable to do so, to ensure comparability with the current period, and the nature, amount of, and reason for, any reclassification should be disclosed. When it is impracticable to reclassify comparative amounts, an enterprise should disclose the reason for not reclassifying and the nature of the changes that would have been made if amounts were reclassified.

Circumstances may exist when it is impracticable to reclassify comparative information to achieve comparability with the current period. For example, data may not have been collected in the previous period(s) in a way which allows reclassification, and it may not be practicable to recreate the information. In such circumstances, the nature of the adjustments to comparative amounts that would have been made is disclosed. IAS 8 deals with the adjustments required to comparative information following a change in accounting policy that is applied retrospectively.

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2.3. CRITERIA FOR INCLUSION OF ITEMS IN THE FINANCIAL STATEMENT2.3.1. Assets2.3.1.1. Definition criteria

The future economic benefit embodied in an asset is the potential to contribute, directly or indirectly, to the flow of cash and cash equivalents to the enterprise. The potential may be a productive one that is part of the operating activities of the enterprise. It may also take the form of convertibility into cash or cash equivalents or a capability to reduce cash outflows, such as when an alternative manufacturing process lowers the costs of production.

An enterprise usually employs its assets to produce goods or services capable of satisfying the wants or needs of customers; because these goods or services can satisfy these wants or needs, customers are prepared to pay for them and hence contribute to the cash flow of the enterprise. Cash itself renders a service to the enterprise because of its command over other resources.

The future economic benefits embodied in an asset may flow to the enterprise in a number of ways. For example, an asset may be:(a) used singly or in combination with other assets in the production of goods

or services to be sold by the enterprise;(b) exchanged for other assets;(c) used to settle a liability; or(d) distributed to the owners of the enterprise.

Many assets, for example, property, plant and equipment, have a physical form. However, physical form is not essential to the existence of an asset; hence patents and copyrights, for example, are assets if future economic benefits are expected to flow from them to the enterprise and if they are controlled by the enterprise.

Many assets, for example, receivables and property, are associated with legal rights, including the right of ownership. In determining the existence of an asset, the right of ownership is not essential; thus, for example, property held on a lease is an asset if the enterprise controls the benefits which are expected to flow from the property. Although the capacity of an enterprise to control benefits is usually the result of legal rights, an item may nonetheless satisfy the definition of an asset even when there is no legal control. For example, know-how obtained from a development activity may meet the definition of an asset when, by keeping that know-how secret, an enterprise controls the benefits that are expected to flow from it.

The assets of an enterprise result from past transactions or other past events. Enterprises normally obtain assets by purchasing or producing them, but other transactions or events may generate assets; examples include property received by an enterprise from government as part of a program to encourage economic growth in an area and the discovery of mineral deposits. Transactions or events expected to occur in the future do not in themselves give rise to assets; hence, for example, an intention to purchase inventory does not, of itself, meet the definition of an asset.

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There is a close association between incurring expenditure and generating assets but the two do not necessarily coincide. Hence, when an enterprise incurs expenditure, this may provide evidence that future economic benefits were sought but is not conclusive proof that an item satisfying the definition of an asset has been obtained. Similarly the absence of a related expenditure does not preclude an item from satisfying the definition of an asset and thus becoming a candidate for recognition in the balance sheet; for example, items that have been donated to the enterprise may satisfy the definition of an asset.

2.3.1.2. Recognition criteriaAn asset is recognized in the balance sheet when it is probable that the future economic benefits will flow to the enterprise and the asset has a cost or value that can be measured reliably.

An asset is not recognized in the balance sheet when expenditure has been incurred for which it is considered improbable that economic benefits will flow to the enterprise beyond the current accounting period. Instead such a transaction results in the recognition of an expense in the income statement. This treatment does not imply either that the intention of management in incurring expenditure was other than to generate future economic benefits for the enterprise or that management was misguided. The only implication is that the degree of certainty that economic benefits will flow to the enterprise beyond the current accounting period is insufficient to warrant the recognition of an asset.

2.3.2. Liabilities2.3.2.1. Definition criteria

An essential characteristic of a liability is that the enterprise has a present obligation. An obligation is a duty or responsibility to act or perform in a certain way. Obligations may be legally enforceable as a consequence of a binding contract or statutory requirement. This is normally the case, for example, with amounts payable for goods and services received. Obligations also arise, however, from normal business practice, custom and a desire to maintain good business relations or act in an equitable manner. If, for example, an enterprise decides as a matter of policy to rectify faults in its products even when these become apparent after the warranty period has expired, theamounts that are expected to be expended in respect of goods alreadysold are liabilities.

A distinction needs to be drawn between a present obligation and a future commitment. A decision by the management of an enterprise to acquire assets in the future does not, of itself, give rise to a present obligation. An obligation normally arises only when the asset is delivered or the enterprise enters into an irrevocable agreement to acquire the asset. In the latter case, the irrevocable nature of the agreement means that the economic consequences of failing to honour the obligation, for example, because of the existence of a substantial penalty, leave the enterprise with little, if any, discretion to avoid the outflow of resources to another party.

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The settlement of a present obligation usually involves the enterprise giving up resources embodying economic benefits in order to satisfy the claim of the other party. Settlement of a present obligation may occur in a number of ways, for example, by:

(a) payment of cash;(b) transfer of other assets;(c) provision of services;(d) replacement of that obligation with another obligation; or(e) conversion of the obligation to equity.

An obligation may also be extinguished by other means, such as a creditor waiving or forfeiting its rights.

Liabilities result from past transactions or other past events. Thus, for example, the acquisition of goods and the use of services give rise to trade payables (unless paid for in advance or on delivery) and the receipt of a bank loan results in an obligation to repay the loan. An enterprise may also recognize future rebates based on annual purchases by customers as liabilities; in this case, the sale of the goods in the past is the transaction that gives rise to the liability.

Some liabilities can be measured only by using a substantial degree of estimation. Some enterprises describe these liabilities as provisions. In some countries, such provisions are not regarded as liabilities because the concept of a liability is defined narrowly so as to include only amounts that can be established without the need to make estimates. Thus, when a provision involves a present obligation and satisfies the rest of the definition, it is a liability even if the amount has to be estimated. Examples include provisions for payments to be made under existing warranties and provisions to cover pension obligations.

2.3.2.2. Recognition criteria

A liability is recognized in the balance sheet when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will take place can be measured reliably. In practice, obligations under contracts that are equally proportionately unperformed (for example, liabilities for inventory ordered but not yet received) are generally not recognized as liabilities in the financial statements. However, such obligations may meet the definition of liabilities and, provided the recognition criteria are met in the particular circumstances, may qualify for recognition. In such circumstances, recognition of liabilities entails recognition of related assets or expenses.

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2.3.3. Equity2.3.2.3. Definition criteria

Although equity is defined as a residual, it may be subclassified in the balance sheet. For example, in a corporate enterprise, funds contributed by shareholders, retained earnings, reserves representing appropriations of retained earnings and reserves representing capital maintenance adjustments may be shown separately. Such classifications can be relevant to the decision-making needs of the users of financial statements when they indicate legal or other restrictions on the ability of the enterprise to distribute or otherwise apply its equity. They may also reflect the fact that parties with ownership interests in an enterprise have differing rights in relation to the receipt of dividends or the repayment of capital.

The creation of reserves is sometimes required by statute or other law in order to give the enterprise and its creditors an added measure of protection from the effects of losses. Other reserves may be established if national tax law grants exemptions from, or reductions in, taxation liabilities when transfers to such reserves are made. The existence and size of these legal, statutory and tax reserves is information that can be relevant to the decision-making needs of users. Transfers to such reserves are appropriations of retained earnings rather than expenses.

The amount at which equity is shown in the balance sheet is dependent on the measurement of assets and liabilities. Normally, the aggregate amount of equity only by coincidence corresponds with the aggregate market value of the shares of the enterprise or the sum that could be raised by disposing of either the net assets on a piecemeal basis or the enterprise as a whole on a going concern basis.

Commercial, industrial and business activities are often undertaken by means of enterprises such as sole proprietorships, partnerships and trusts and various types of government business undertakings. The legal and regulatory framework for such enterprises is often different from that applying to corporate enterprises. For example, there may be few, if any, restrictions on the distribution to owners or other beneficiaries of amounts included in equity. Nevertheless, the definition of equity and the other aspects of the Framework that deal with equity are appropriate for such enterprises.

2.3.4. Revenues and Expenses2.3.2.4. Definition criteria

IncomeThe definition of income encompasses both revenue and gains. Revenue arises in the course of the ordinary activities of an enterprise and is referred to by a variety of different names including sales, fees, interest, dividends, royalties and rent.

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Gains represent other items that meet the definition of income and may or may not arise in the course of the ordinary activities of an enterprise. Gains represent increases in economic benefits and as such are no different in nature from revenue. Hence, they are not regarded as constituting a separate element in this Framework.

Gains include, for example, those arising on the disposal of non-current assets. The definition of income also includes unrealised gains; for example, those arising on the revaluation of marketable securities and those resulting from increases in the carrying amount of long term assets. When gains are recognised in the income statement, they are usually displayed separately because knowledge of them is useful for the purpose of making economic decisions. Gains are often reported net of related expenses.

Various kinds of assets may be received or enhanced by income; examples include cash, receivables and goods and services received in exchange for goods and services supplied. Income may also result from the settlement of liabilities. For example, an enterprise may provide goods and services to a lender in settlement of an obligation to repay an outstanding loan.

ExpenseThe definition of expenses encompasses losses as well as those expenses that arise in the course of the ordinary activities of the enterprise. Expenses that arise in the course of the ordinary activities of the enterprise include, for example, cost of sales, wages and depreciation. They usually take the form of an outflow or depletion of assets such as cash and cash equivalents, inventory, property, plant and equipment.

Losses represent other items that meet the definition of expenses and may, or may not, arise in the course of the ordinary activities of the enterprise. Losses represent decreases in economic benefits and as such they are no different in nature from other expenses. Hence, they are not regarded as a separate element in the Framework.

Losses include, for example, those resulting from disasters such as fire and flood, as well as those arising on the disposal of non-current assets. The definition of expenses also includes unrealised losses, for example, those arising from the effects of increases in the rate of exchange for a foreign currency in respect of the borrowings of an enterprise in that currency. When losses are recognised in the income statement, they are usually displayed separately because knowledge of them is useful for the purpose of making economic decisions. Losses are often reported net of related income.

2.3.2.5. Recognition criteriaIncomeIncome is recognised in the income statement when an increase in future economic benefits related to an increase in an asset or a decrease of a liability has arisen that can be measured reliably. This means, in effect, that recognition of income occurs simultaneously with the recognition of increases in assets or decreases in liabilities (for example, the net increase in assets arising on a sale of goods or services or the decrease in liabilities arising from the waiver of a debt payable).

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The procedures normally adopted in practice for recognising income, for example, the requirement that revenue should be earned, are applications of the recognition criteria in the Framework. Such procedures are generally directed at restricting the recognition as income to those items that can be measured reliably and have a sufficient degree of certainty.

ExpenseExpenses are recognised in the income statement when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably. This means, in effect, that recognition of expenses occurs simultaneously with the recognition of an increase in liabilities or a decrease in assets (for example, the accrual of employee entitlements or the depreciation of equipment).

Expenses are recognised in the income statement on the basis of a direct association between the costs incurred and the earning of specific items of income. This process, commonly referred to as the matching of costs with revenues, involves the simultaneous or combined recognition of revenues and expenses that result directly and jointly from the same transactions or other events; for example, the various components of expense making up the cost of goods sold are recognised at the same time as the income derived from the sale of the goods. However, the application of the matching concept under this Framework does not allow the recognition of items in the balance sheet which do not meet the definition of assets or liabilities.

When economic benefits are expected to arise over several accounting periods and the association with income can only be broadly or indirectly determined, expenses are recognised in the income statement on the basis of systematic and rational allocation procedures. This is often necessary in recognising the expenses associated with the using up of assets such as property, plant, equipment, goodwill, patents and trademarks; in such cases the expense is referred to as depreciation or amortisation. These allocation procedures are intended to recognise expenses in the accounting periods in which the economic benefits associated with these items are consumed or expire.

An expense is recognised immediately in the income statement when an expenditure produces no future economic benefits or when, and to the extent that, future economic benefits do not qualify, or cease to qualify, for recognition in the balance sheet as an asset.

An expense is also recognised in the income statement in those cases when a liability is incurred without the recognition of an asset, as when a liability under a product warranty arises.

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3. Balance Sheet

3.1. PRESENTATION OF BALANCE SHEET3.1.1. Maturity

An entity shall present current and non-current assets and current and non-current liabilities as separate classifications on the face of its balance sheet in accordance with the definitions of current assets and liabilities except when a presentation based on liquidity provides information that is reliable and is more relevant. When that exception applies, all assets and liabilities shall be presented broadly in order of liquidity.

Whichever method of presentation is adopted, for each asset and liability line item that combines amounts expected to be recovered or settled (a) no more than twelve months after the balance sheet date and (b) more than twelve months after the balance sheet date,an entity shall disclose the amount expected to be recovered or settled after more than twelve months.

COMPANY policy: a presentation based on liquidity is not reliable or more relevant than a presentation based on maturity. Therefore, the presentation will be according to maturity.

3.1.2. Current assetsAn asset shall be classified as current when it satisfies any of the following criteria:(a) it is expected to be realised in, or is intended for sale or consumption in,

the entity’s normal operating cycle;(b) it is held primarily for the purpose of being traded;(c) it is expected to be realised within twelve months after the balance sheet

date; or(d) it is cash or a cash equivalent (as defined in IAS 7 Cash Flow Statements)

unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the balance sheet date.

All other assets shall be classified as non-current.

3.1.3. Non-current assetsSee definition of current asset (3.1.2.)

3.1.4. Current liabilitiesA liability shall be classified as current when it satisfies any of the following criteria:(a) it is expected to be settled in the entity’s normal operating cycle;(b) it is held primarily for the purpose of being traded;(c) it is due to be settled within twelve months after the balance sheet date; or(d) the entity does not have an unconditional right to defer settlement of the

liability for at least twelve months after the balance sheet date.

All other liabilities shall be classified as non-current.

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3.1.5. Non-current liabilitiesSee definition of current liabilities (3.1.4.)

3.1.6. GFC standard formThe GFC standard form for monthly, quarterly and year-end closing can be found in attachment 1 of the basis reporting documents.

3.1.7. General Chart of Accounts - balance sheet accountsA description of the GFC accounts for the balance sheet is given in the corresponding sections of the accounting manual. As attachment 5 please find the whole General Chart of Accounts with

Hierarchy (summation level) Account number Name of the account Description References to

o Balance sheeto Income statemento Equity breakdowno Accounting Manual

3.2. TWO-STEP MEASUREMENT3.2.1. Measurement at recognition

Initial measurement / measurement at the acquisition date. Assets and liabilities are measured at cost (generally fair value).

3.2.2. Measurement after recognitionSubsequent measurement of assets and liabilities follows a “mixed measurement approach.” The possible valuation methods are

amortized cost other measurement criterion which is regulated in the different

standards such as fair value, net realizable value, value in use.

3.3. VALUATION PRINCIPLES3.3.1. Historical Cost

Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances (for example, income taxes), at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business.

3.3.2. Fair valueThe amount for which (a) an asset could be exchanged or (b) a liability settled between knowledgeable, willing parties in an arm’s length transaction.

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3.3.3. Recoverable amountRecoverable amount is the higher of net realisable value (an asset’s net selling price) and value in use.

3.3.3.1. Net realisable valueNet realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The sale of the asset shall be in an arm’s length transaction between knowledgeable, willing parties.

3.3.3.2. Value in useThe present value of estimated future cash flow expected to arise from the continuing use of an asset and from its disposal at the end of its useful life.

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3.4. BALANCE SHEET ITEMS3.4.1. Property, Plant and Equipment3.4.1.1. Recognition

Property, plant and equipment are tangible items that are held for use in the production or supply of goods or services, for rental to others or for administrative purposes and are expected to be used during more than one period. They shall be recognized to the extent that the cost exceeds the limit for capitalization. It must be probable that the future economic benefits will flow to the Company and the cost must be able to be measured reliably.

An item of property, plant and equipment shall be derecognized on disposal or when no future economic benefits are expected from its use or disposal. The gain or loss shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset. Net gains or losses shall be recognized under other income or expenses.

3.4.1.2. ValuationCOMPANY shall account for property, plant and equipment using the cost model (not fair value). Property, plant and equipment will be valued at cost less accumulated depreciation.

The costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to or replace part of it. Normal repairs and maintenance are not part of the cost. Major repairs should be capitalized if they increase the useful life of the asset. It is not expected that COMPANY Companies would incur any major inspections that would be recognized as asset costs. Costs include

a) purchase price, including import duties and taxes, after deducting trade discounts and rebates,

b) any costs directly attributable to bringing the asset to the location and condition necessary to be used (costs of employee benefits arising directly from the construction or acquisition, site preparation, delivery and handling, installation and assembly, costs of testing, professional fees),

c) the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located if the Company is obligated to do so.

d) Borrowing costs will not be capitalized.

The cost of self-constructed assets (i.e. COMPANY rental machinery) is the production cost or purchase cost after elimination of intercompany profit. An affiliate will record such assets at purchase cost plus duty and handling and the reduction to production cost will be made on a Group level.

COMPANY shall account for property, plant and equipment using the cost model (not fair value). However, in certain countries, IAS 29 Financial Reporting in Hyperinflationary Economies may be applicable. It will be COMPANY policy to apply IAS 29 if the yearly inflation rate is above 30%. If the local laws require restatement of certain assets using an inflation index, this valuation will be accepted for the Group accounts.

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It shall be COMPANY policy to expense all items under € 1.000 or the equivalent in local currency ($1.000 for WC). This amount can be rounded to a round amount in local currency and does not have to be changed with currency fluctuations. Exceptions will be made if the limit for tax purposes is lower, i.e. for WAG € 410.

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. The cost of an asset shall be allocated using the straight-line method over its useful life. The depreciable amount will be calculated after deducting its residual value. In most cases this can be considered to be immaterial. Depreciation shall begin when the asset is available for use. See also Impairment of Assets.

One thing particular to COMPANY is the treatment of machines. Demonstration machines are used by COMPANY sales representatives for demonstrations to customers and are sometimes left with the customer for a certain time as a trial period. In certain cases these machines may be lent or rented for a short time to customers to cover the time period until a broken machine has been repaired. In addition some customers receive consignment stock to be sold at a later date. In all of these cases the machines remain the property of COMPANY and are shown in COMPANY inventory. The demonstration machines must be revalued at net realizable value. In all of the above cases, the machines will eventually be sold.

Only when machines are part of a rental fleet at a company actively engaged in the rental business will these machines be booked into fixed assets and depreciated at average standard cost

All assets shall be depreciated using the following useful lives:

years

Buildings 50Land improvements 15Building and Leasehold improvements 5-10 or length of

leaseRental machines non-COMPANY 6Rental machines < € 1.000 2Rental machines > € 1.000 4Production machines 10Production tooling 2-5Warehouse and workshop equipment 10-13Office furniture and equipment 5-13Computer hardware 3Vehicles 4-6Trucks over 2,8 t and trailers 7

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Assets Held for SaleA non-current asset is to be classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. The assets must be available and intended to be sold within one year and actual efforts be made to make the sale; the sale must be highly probable. This would be the case if a decision is made to sell a local property or close down an affiliate. This is not the case if an asset is to be abandoned (see Impairment of Assets). These assets are to be valued at the lower of carrying amount and fair value less costs to sell. They must be shown separately in the balance sheet under current assets. In the case of closing down a company, there may be assets as well as liabilities which may not be offset.

Impairment losses can be recognized on these assets (see Impairment of Assets). Any subsequent increase in fair value less costs to sell shall be recognized only to the extent of cumulative impairment losses that have been recognized. These assets shall not be depreciated or amortized while classified as held for sale.

The gain or loss on the remeasurement of assets held for sale that are not discontinued operations shall be booked to profit or loss from continuing operations in the same category (cost centre) as the depreciation for the asset. The gain or loss from discontinued operations must be shown separately in the income statement.

Impairment of AssetsAn asset is considered impaired if its recoverable amount (amount to be recovered through use or sale) is less than its carrying amount (cost less depreciation or amortization). At the end of every year, it is necessary to analyze whether there is any indication that intangible assets or property, plant and equipment may be impaired. Such indications may be:

market value declined significantly or is less than carrying amount

significant changes in technological, market, economic or legal environment which affect the asset

market interest rates or rates of return have increased which would affect the discount rate used in calculating value in use

asset is obsolete or damaged significant changes within the entity such as plans to

discontinue or restructure operations poor economic performance – high cash needs, decline in

operating profit

If any of the indicators for impairment exist, an analysis of impairment must be made. In calculating recoverable amount, an asset which alone is not capable of generating cash inflows must be grouped together with other assets to make a group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. For example, no single machine in the factory is capable of generating cash, but a focus factory is. In discussing impairment when reference to an asset is made, either an individual asset or a cash-generating unit is meant.

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The recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use. If either value exceeds the carrying value, an asset is not impaired. Fair value less costs to sell is the amount obtainable from the sale of an asset or cash-generating unit in an arm’s length transaction, less the costs of disposal. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. For example, even if the value of the land and building where a factory are located decreases below carrying value, if they will continue to be used in a profitable production facility, there is no impairment.

Important: If you think you may need to recognize an impairment on any of your assets, contact GFC for further discussion immediately.

If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount shall be reduced to its recoverable amount. This impairment loss shall be recognized immediately in profit or loss. The depreciation or amortization charge shall be adjusted in future periods to allocate the revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life.

In later years, if it shall be determined that the recoverable value has increased, the impairment loss reserve can be reversed, but the asset’s value cannot be greater than the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years. This reversal shall be recognized immediately in profit or loss and the future depreciation shall be adjusted accordingly.

3.4.1.3. Presentation in the Financial StatementsIn the balance sheet, property, plant and equipment will be presented in line 1 of the basic reporting document.

In the notes the following detail will be presented:

LandBuildings and ImprovementsTechnical Equipment and Machines (production and rental machines)Operating and Office Equipment (warehouse, workshop, office)Construction in Progress/Prepayments

In addition, details of accounting policies (measurement basis, depreciation methods and useful lives) and fixed asset movements must be shown in the notes. This will be done with a roll forward in the above detail. In case any assets are restricted or there are any contractual commitments, these must also be disclosed. In the case of impairment additional disclosures are required.

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The following accounts will be used in the Group Chart of Accounts. For each category of fixed assets there are separate accounts for the initial cost and for accumulated depreciation. There are also separate accounts for the additions, retirements and transfers during the current year (in order to save space only shown in the general Chart of Accounts, see attachment 5). The accounts for exchange rate differences are for GFC use only. If in your country you make inflation adjustments to fixed assets, these should be accumulated in separate accounts for each category and reported to either the additions or retirements account as applicable for that category.

For the booking of the additions and retirements see the example transactions below.

# name description02210 Land Purchase value of land owned by

company.02310 Buildings Purchase value of buildings owned by

company. Components of building such as air conditioning and heating which have a different useful life from the building are to be shown under improvements (# 02410).

02410 Outside facilities and improvements

Purchase value of outside facilities (access road, landscaping, signs, fences, gates, etc.) and improvements to buildings owned by the company (air conditioning, heating, elevators, security system, etc.).

02510 Leasehold improvements Expenditures which meet the requirements for recognition made in buildings which are being rented or leased.

02970 Accum. depr. - land and buildings

corresponding depreciation account to # 02210 and # 2310.

02980 Accum. depr. - outside facilities and improvements

corresponding depreciation account to # 02410.

02990 Accum. depr. - leasehold improvements


04010 Machinery and equipment (general)

Machinery and equipment used in production process. Not applicable for affiliates without production.

04020 Tools, models and forms Tools, models and forms used in production process. Not applicable for affiliates without production.

04030 Rental non-COMPANY Those machines being rented to customers which are not COMPANY machines.

04040 Rental COMPANY non-self-constructed

Those machines being rented to customers which are COMPANY machines which have been purchased from another affiliate.

04050 Rental COMPANY self-constructed

Those machines being rented to customers which are COMPANY

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machines which have been produced by you.

04060 Finance lease machinery and equipment

Machinery and equipment used in production process which is being leased with a finance lease. Not applicable for affiliates without production.

04100 Accum. Depr. – machinery and equipment (general)


04200 Accum. Depr. – tools, models and forms


04300 Accum. Depr. – rental non-COMPANY


04400 Accum. Depr. – rental COMPANY non-self-constructed


04500 Accum. Depr. – rental COMPANY self-constructed


04600 Accum. Depr. – finance lease machinery and equipment


05010 Vehicles Cars, trucks, vans, trailers and other vehicles which are allowed to operate on public roads. Forklifts and other such machines used only in the warehouse should be shown under 05030 Warehouse and workshop equipment.

05030 Warehouse and workshop equipment

All equipment located in the warehouse or workshop such as shelves, work bench, tools, machines, forklift, etc.

05040 Office furniture and other equipment

All office equipment such as furniture, telephone system, computer hardware, etc. and any other equipment.

05050 Finance lease office and other equipment

Any other equipment (not production) which is being leased under a finance lease, i.e. vehicles, copy machines, etc.

05100 Accum. Depr. – vehicles corresponding depreciation account to # 05010.

05300 Accum. Depr. – warehouse and workshop equipment


05400 Accum. Depr. – office furniture and other equipment


05500 Accum. Depr. – finance lease office and other equipment


07010 Buildings under construction

All recognizable payments for a building not yet taken into service.

07020 Payments on account All advance payments for recognizable

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property, plant and equipment

assets (except buildings) which have not yet been taken into service.

The following related accounts also concern this area:

Research and developments costs – These costs will not be capitalized but will be expensed to account 66110 Research & development costs.

The depreciation of assets will be expensed to the appropriate account and allocated to cost centres for production, sales and service, research and development or general administrative expenses. For each account for accumulated depreciation there is a corresponding account for depreciation expense.

# name description64510 Depr. – buildings Allocation of the costs of

buildings over their useful lives, when the useful life is greater than 12 months and cost over € 1.000.

64515 Depr. – outside facilities and improvements

Allocation of the costs of outside facilities and improvements over their useful lives, when the useful life is greater than 12 months and cost over €1.000.

64520 Depr. – leasehold improvements Improvements on leased property that have a useful life is greater than 12 months or and cost over € 1.000. This could include new doors, lighting, building offices, etc.

64525 Depr. – machinery and equipment Allocation of the costs of machines and equipment over their useful lives, when the useful life is greater than 12 months and cost over € 1.000.

64530 Depr. – tools, models and forms Tooling, models and forms used to produce parts that have a life greater than 12 months and cost over € 1.000.

64550 Depr. – finance lease machinery and equipment

Depreciation calculated on leased machinery or equipment determined to be a finance lease.

64555 Depr. – vehicles Purchased vehicles must be depreciated per the Fixed Asset section of the Accounting Manual.

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# name description64565 Depr. – warehouse and workshop

equipmentDepreciation on warehouse or workshop equipment.

64570 Depr. – office furniture and other equipment

Allocation of the costs of office machines and equipment over their useful lives, when the useful life is greater than 12 months and cost over € 1.000.

64575 Depr. – finance lease office and other equipment

Depreciation calculated on leased office and other equipment determined to be a finance lease.

The loss from and reversal of the impairment of assets will be shown under account 64599 impairment others.

Gain or loss on sales of assets – The net gain or loss (proceeds less carrying value of asset at time of derecognition) will be shown under other income or expenses except for the sale of rental machines, which will be shown under sales. For each asset sold, there will be either a gain or loss. According to whether there is a gain or loss, the proceeds and book value will be booked in the appropriate section.

# name description71120 Gain on sale of non-current assets –

proceedsSee attachment 5

71121 Gain on sale of non-current assets – net book value

See attachment 5

71125 Gain on sale of non-current assets (affiliate) – proceeds

See attachment 5

71126 Gain on sale of non-current assets (affiliate) – net book value

See attachment 5

# name description75220 Loss on sale of non-current assets -

proceedsSee attachment 5

75221 Loss on sale of non-current assets - net book value

See attachment 5

75225 Loss on sale of non-current assets (affiliate) - proceeds

See attachment 5

75226 Loss on sale of non-current assets (affiliate) - net book value

See attachment 5

The gain or loss on the remeasurement of assets held for sale that are not discontinued operations shall be included in profit or loss from continuing operations (other income or expense). The gain or loss from discontinued operations must be shown separately in the income statement.

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3.4.1.4. Worksheets

A roll-forward of tangible and intangible assets is necessary to provide all the information necessary for the notes to the financial statements. This can be prepared from the detailed accounts for additions, retirements, etc. Therefore a separate worksheet will not be necessary.

3.4.1.5. Description of typical transactions

During the year an affiliate purchased several items. The transactions are recorded as:

# name debit # name credit05011 Vehicles -

additions4.400,00 1701

0Bank xxx EUR 4.400,00

05031 Warehouse and workshop equipment - additions

7.212,00 17010

Bank xxx EUR 7.212,00

05041 Office furniture and other equipment - additions

1.250,00 17010

Bank xxx EUR 1.250,00

The assets were set up on a depreciation schedule based on the assets’ useful lives and the straight line depreciation method. Residual value is considered to be zero.

# Description Historical Cost Useful Life

Monthly Depr.

05010 Vehicles 4.400,00 5 73,3305030 Warehouse and

workshop equipment7.212,00 10 60,10


1.250,00 13 8,01

The monthly depreciation is recorded as follows:

# name debit # name credit64555 Depr. - vehicles 73,33 0510

1Accum. depr. - vehicles - additions

73,33

64565 Depr. - warehouse and workshop equipment

60,10 05301

Accum. depr. - warehouse and workshop equipment - additions

60,10

64570 Depr. - office furniture and other equipment

8,01 05401

Accum. depr. - office furniture and other equipment - additions

8,01

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At the beginning of the following year the accounts for movements must be cleared. We will assume the vehicle has been depreciated for 6 months, the warehouse shelves for 10 months and the office furniture for 4 months.

# name debit # name credit05010 Vehicles 4.400,00 0501

1Vehicles - additions

4.400,00

05030 Warehouse and workshop equipment

7.212,00 05031

Warehouse and workshop equipment - additions

7.212,00


1.250,00 05041

Office furniture and other equipment - additions

1.250,00

05101 Accum. depr. - vehicles - additions

439,98 05100

Accum. depr. - vehicles

439,98

05301 Accum. depr. - warehouse and workshop equipment - additions

601,00 05300

Accum. depr. - warehouse and workshop equipment

601,00

05401 Accum. depr. - office furniture and other equipment - additions

32,04 05400

Accum. depr. - office furniture and other equipment

32,04

Twenty-two months after it was purchased the vehicle is sold for 3.000,00. The book value in the accounts is as follows:

# Description Book Value05010 Vehicles 4.400,0005100 Accum. Depr. Vehicles 1.319,9405101 Accum. Depr. Vehicles – additions 293,32

Carry value at date of sale 2 .786,74 Since this sale results in a gain, the bookings are to be made in the gain accounts.

# name debit # name credit17010 Bank xxx EUR 3.000,00 7112

0Gain on sale of non-current assets - proceeds

3.000,00

05102 Accum. depr. - vehicles - retirements

1.613,26 05012

Vehicles - retirements

4.400,00

71121 Gain on sale of non-current assets - net book value

2.786,74

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Seventy-two months (6 years) after it was purchased the warehouse shelves are sold for 2.000,00. The book value in the accounts is as follows:

# Description Book Value05030 Warehouse and workshop equipment 7.212,0005300 Accum. Depr. Warehouse and workshop

equipment -3.726,2005301 Accum. Depr. Warehouse workshop

equipment - additions -601,00Carry value at date of sale 2 .884,80

Since this sale results in a loss, the bookings are to be made in the loss accounts.

# name debit # name credit17010 Bank xxx EUR 2.000,00 7522

0Loss on sale of non-current assets - proceeds

2.000,00

05302 Accum. depr. - Warehouse and workshop equipment - retirements

4.327,20 05032

Warehouse and workshop equipment - retirements

7.212,00

75221 Loss on sale of non-current assets - net book value

2.884,80

After 15 years the office furniture is scrapped. The book value in the accounts is as follows:

# Description Book Value05040 Office furniture and other equipment 1.250,0005400 Accum. Depr. – office furniture

and other equipment -1 .250,00 Carry value at date of disposal 0,00

In this case, only the values of the asset and accumulated depreciation must be removed from the accounts.

# name debit # name credit05402 Accum. depr. -

Office furniture and other equipment - retirements

1.250,00 05042

Office furniture and other equipment - retirements

1.250,00

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3.4.2. Finance lease3.4.2.1. Recognition /Definition

A finance lease (sometimes also called capital lease) is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset; title may or may not eventually be transferred.

The following criteria individually or in combination lead to a lease classified as a finance lease:

the lease transfers ownership of the asset to the lessee by the end of the lease term

the lessee has the option to purchase the asset at a price which is expected to be sufficiently lower than fair value at the date the option becomes exercisable that, at the inception of the lease, it is reasonably certain that the option will be exercised

the lease term is for the major part of the economic life of the asset, even if title is not transferred

at the inception of the lease, the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset

the lease assets are of a specialized nature such that only the lessee can use them without major modifications being made.

Indicators or situations that individually or in combination could also lead to a lease being classified as a finance lease are:

if the lessee is entitled to cancel the lease, the lessor's losses associated with the cancellation are borne by the lessee,

gains or losses from the fluctuation in the fair value of the residual accrue to the lessee (for example, in the form of a rent rebate equalling most of the sales proceeds at the end of the lease), and

the lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than market rent.

Please be aware of the fact that leases of land and buildings have to be considered differently. Please inform GFC if you show in your balance sheet leased land and building which fall under finance lease and which is not rented.

An operating lease is a lease that is not a finance (capital) lease.

Because the indicators for finance lease given in the standard are not specified by figures or percentages the COMPANY policy for finance leases is defined as follows (see also worksheet):

the lease covers 75% or more of the useful life of assets. the present value (PV) of the minimum lease payments at the

beginning of the lease term is 90% or more of the fair value to the lessor less any investment credit retained by the lessor.

It is COMPANY policy to only enter lease contracts which are operating lease contracts. Only leasing contracts for vehicles are permitted. Finance lease contracts lead under IFRS lead to extraordinary time expenditure which can be avoided.

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3.4.2.2. Valuation

Finance Lease ValuationAt the commencement of the lease term lessees shall recognize finance leases as assets and liabilities in their balance sheets at amounts equal to the fair value of the leased equipment or, if lower, the present value of the minimum lease payments each determined at the inception of the lease. The discount rate to be used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease, if this is practicable to determine; if not the lessee’s incremental borrowing rate shall be used. Any initial direct costs of the lessee are added to the amount recognized as an asset.

The asset which was capitalized at fair value or present value of the minimum lease payments will be depreciated over its useful life. The depreciation will be considered as an expense.

The lease liability will be diminished by the lease payments. The lease payments include an interest and repayment part.

Operating Lease ValuationLease payments under an operating lease shall be recognized as an expense on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the user’s benefit.

3.4.2.3. Presentation in the Financial Statements

Balance SheetIn the balance sheet finance lease transactions are presented within property, plant and equipment, in long-term borrowings (non-current liabilities) as well as in current portion of long-term borrowings (current liabilities). In case there is a sale-and-lease-back contract which includes a realized gain out of the sale-and-lease-back transaction, it must be shown as deferred income as a part of the other liabilities in the (current liabilities).

NotesFor the notes the following disclosures for finance lease shall be made:a) for each class of assets, the net carrying amount at the balance sheet

dateb) reconciliation between the total of future minimum lease payments at

the balance sheet and their present value. In addition, an entity shall disclose the total of future minimum lease payments at the balance sheet date and their present value for each of the following periods:

not later than one year; later than one year and not later than five years; later than five years

c) contingent rents recognized as an expense in the periodd) the total of future minimum sublease payments expected to be

received under non-cancellable subleases at the balance sheet date

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e) a general description of the lessee’s material leasing arrangements including, but not limited to, the following:

the basis on which contingent rent payable is determined; the existence and terms of renewal or purchase options and

escalation clauses; restrictions imposed by lease arrangements, such as those

concerning dividends, additional debts, and further leasing.

For operating leases the following disclosures shall be made:a) the total of future minimum lease payments under non-cancellable

operating leases for each of the following periods: not later than one year; later than one year and not later than five years; later than five years

b) the total of future minimum sublease payments expected to be received under non-cancellable subleases at the balance sheet date

c) lease and sublease payments recognized as an expense in the period, with separate amounts for minimum lease payments, contingent rents, and sublease payments.

d) a general description of the lessee’s significant leasing arrangements including, but not limited to, the following: the basis on which contingent rent payable is determined; the existence and terms of renewal or purchase options and

escalation clauses; restrictions imposed by lease arrangements, such as those

concerning dividends, additional debts, and further leasing.

Accounts

# name description04060 Finance lease

machinery and equipment

all finance lease contracts for assets which in case they were bought should be shown under "machinery and equipment"

04600 Accum. depr. - finance lease machinery and equipment

corresponding accum. depreciation account to # 04060

05050 Finance lease office and other equipment

all finance lease contracts for assets which in case they were bought should be shown under "office and other equipment"

64575 Depr. - finance lease office and other equipment

corresponding accum. depreciation account to # 05050

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# name description30120 Long-term liabilities

finance lease over 1 year up to 5 years

Self-explanatory

30125 Long-term liabilities finance lease over 5 years

Self-explanatory

33620 Long-term liabilities finance lease under 1 year

Self-explanatory

Related accounts

# name description36010 Deferred Income Income which is paid now for a future

income, also includes gains on sale and lease back transactions in context with leasing contracts.

64550 Depr. - finance lease machinery and equipment

Depreciation calculated on leased machinery or equipment determined to be a finance lease.

64575 Depr. - finance lease office and other equipment

Depreciation calculated on leased office and other equipment determined to be a finance lease.

77745 Interest Finance Lease

Interest paid on finance lease

3.4.2.4. Worksheets

See attachment 6 “Finance vs. Operating”

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This Lease is OPERATING

(Note: Enter data in boxed cells.)

A lease is a Capital lease if it meets any one of the following 4 criteria:

(If any YES = Capital Lease)

1. The lease contains a bargain purchase option. noBargain purchase option is a provision allowing the lessee the option of purchasing the leased property for an amount, exclusive of lease payments, which is sufficiently lower than the expected fair value of the property at the date the option becomes exercisable. Exercise of the option must appear reasonably assured at the inception of the lease. GAAP does not offer additional guidance defining "sufficiently lower", in which many factors such as the time value of money, usage, and technological changes influence whether the option fulfils the criteria for a bargain.

2. The lease covers 75% or more of the assets useful life.

The lease term is equal to 75% or more of the estimated economic life of the leased property, and the beginning of the lease term does not fall within the last 25% of the total economic life of the leased property.

Lease Term Life of Asset

% Useful Life

3 7 43% NO

3. The PV of the lease payments equal to or greater than 90% of FMV of the asset.

The present value (PV) of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value to the lessor less any investment credit retained by the lessor. This requirement cannot be used if the lease's inception is in the last 25% of the useful economic life of the leased asset. The interest rate used to compute the PV should be the incremental borrowing rate of the lessee unless the implicit rate is available and lower.

Lease Payment # of PaymentsInt rate/period PV of Lease Pmts* Value of Asset % of FMV

$ 658,46 36 0,1917% $22.927,93 $ 30.918 74% NO

4. The lease term transfers ownership to the lessee by the end of the lease term. NO

For further reference see IAS 17

* This PV of lease payments can be typed in if there are varying monthly payments and / or the PV is calculated elsewhere.

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This worksheet is an Excel-based decision worksheet and is also included in the electronic attachments to the accounting manual. It should be used to decide whether you have an operating or finance lease.

3.4.2.5. Description of typical transactionsIn the following examples (see also attachment 7a-c), a typical leasing contract for a vehicle is described as well as the consequences for the reporting periods:

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a) normal finance lease contract

leasing contract XXXX €

historical costs 200.000,00residual value 0,00monthly annuity 5.000,00interest rate in % 1,4394781001%beginning of leasing contract

08.12.2004

end of leasing contract 07.12.2009run time in months 60

Month Leasing payment

Interest Repayment Carrying amount

200.000,00Dez 04 3.833,33 2.207,20 1.626,13 198.373,87

3.833,33 2.207,20 1.626,13

Jan 05 5.000,00 2.855,55 2.144,45 196.229,42Feb 05 5.000,00 2.824,68 2.175,32 194.054,10Mrz 05 5.000,00 2.793,37 2.206,63 191.847,47Apr 05 5.000,00 2.761,60 2.238,40 189.609,07Mai 05 5.000,00 2.729,38 2.270,62 187.338,45Jun 05 5.000,00 2.696,70 2.303,30 185.035,15Jul 05 5.000,00 2.663,54 2.336,46 182.698,69Aug 05 5.000,00 2.629,91 2.370,09 180.328,60Sep 05 5.000,00 2.595,79 2.404,21 177.924,39Okt 05 5.000,00 2.561,18 2.438,82 175.485,57Nov 05 5.000,00 2.526,08 2.473,92 173.011,65Dez 05 5.000,00 2.490,46 2.509,54 170.502,11

60.000,00 32.128,24 27.871,76


60.000,00 26.913,67 33.086,33

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60.000,00 20.723,51 39.276,49

Jan 08 5.000,00 1.412,69 3.587,31 94.551,98Feb 08 5.000,00 1.361,06 3.638,94 90.913,04Mrz 08 5.000,00 1.308,67 3.691,33 87.221,71Apr 08 5.000,00 1.255,54 3.744,46 83.477,25Mai 08 5.000,00 1.201,64 3.798,36 79.678,89Jun 08 5.000,00 1.146,96 3.853,04 75.825,85Jul 08 5.000,00 1.091,50 3.908,50 71.917,35Aug 08 5.000,00 1.035,23 3.964,77 67.952,58Sep 08 5.000,00 978,16 4.021,84 63.930,74Okt 08 5.000,00 920,27 4.079,73 59.851,01Nov 08 5.000,00 861,54 4.138,46 55.712,55Dez 08 5.000,00 801,97 4.198,03 51.514,52

60.000,00 13.375,23 46.624,77

Jan 09 5.000,00 741,54 4.258,46 47.256,06Feb 09 5.000,00 680,24 4.319,76 42.936,30Mrz 09 5.000,00 618,06 4.381,94 38.554,36Apr 09 5.000,00 554,98 4.445,02 34.109,34Mai 09 5.000,00 491,00 4.509,00 29.600,34Jun 09 5.000,00 426,09 4.573,91 25.026,43Jul 09 5.000,00 360,25 4.639,75 20.386,68Aug 09 5.000,00 293,46 4.706,54 15.680,14Sep 09 5.000,00 225,71 4.774,29 10.905,85Okt 09 5.000,00 156,99 4.843,01 6.062,84Nov 09 5.000,00 87,27 4.912,73 1.150,11Dez 09 1.166,67 16,56 1.150,11 0,00

56.166,67 4.652,15 51.514,52

Gesamt 300.000,00 100.000,00 200.000,00

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Based on the repayment table the following bookkeeping entries will result. Please note that for simplification the monthly entries have been combined into a yearly entry and the closing out of the transaction accounts for additions at the beginning of the year has been omitted. (See section on Property, Plant and Equipment.)

At the beginning of the finance leasing contract:

# name debit # name credit05051 Finance lease

office and other equipment - additions

200.000,00 30120

Long-term liabilities finance lease 1-5 years

170.502,11

30125

Long-term liabilities finance lease over 5 years

0,00

30120

Long-term liabilities finance lease under 1 year

29.497,89

At the end of 2004 depreciation and payment for December are booked:

# name debit # name credit64575 Depr. - finance

lease office and other equipment

2.777,77 05501

Accum. depr. - finance lease office and other equipment - additions

2.777,77

# name debit # name credit77745 Interest finance

lease2.207,20 1701



1.626,13

# name debit # name credit30120 Long-term

liabilities finance lease over 1 year up to 5 years

2.509,54 33620


2.509,54

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At the end of 2005 (bookings to be made on a monthly basis)



33.333,33 05501


33.333,33


lease32.128,24 1701



27.871,76



33.086,33 33620


33.086,33

At the end of 2006



33.333,33 05501


33.333,33


lease26.913,67 1701



33.086,33



39.276,49 33620


39.276,49

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At the end of 2007



33.333,33 05501


33.333,33


lease20.723,51 1701



39.276,49



46.624,77 33620


46.624,77

At the end of 2008

# name debit # name credit64575 Depr. – finance


33.333,33 05501


33.333,33


lease13.375,23 1701



46.624,77



51.514,52 33620


51.514,52

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At the end of 2009



33.333,33 05501


33.333,33


lease4.652,15 1701



51.514,52

At the end of 2010



30.555,56 05501


30.555,56


lease0,00 1701

0Bank xxx EUR 0,00


0,00

b) finance lease contract with residual value (“garantierter Restwert”)


historical costs 200.000,00residual value 20.000,00monthly annuity 5.000,00monthly interest rate in % 1,59168652%beginning of leasing contract

08.12.2004

end of leasing contract 07.12.2009run time in months 60

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Month Leasing payment Interest Repayment Carrying amount

200.000,00Dez 04 3.833,33 2.440,59 1.392,74 198.607,26

3.833,33 2.440,59 1.392,74


60.000,00 35.896,52 24.103,48


60.000,00 30.867,50 29.132,50


60.000,00 24.789,22 35.210,78

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60.000,00 17.442,73 42.557,27

Jan 09 5.000,00 1.076,03 3.923,97 63.679,26Feb 09 5.000,00 1.013,57 3.986,43 59.692,83Mrz 09 5.000,00 950,12 4.049,88 55.642,95Apr 09 5.000,00 885,66 4.114,34 51.528,61Mai 09 5.000,00 820,17 4.179,83 47.348,78Jun 09 5.000,00 753,64 4.246,36 43.102,42Jul 09 5.000,00 686,06 4.313,94 38.788,48Aug 09 5.000,00 617,39 4.382,61 34.405,87Sep 09 5.000,00 547,63 4.452,37 29.953,50Okt 09 5.000,00 476,77 4.523,23 25.430,27Nov 09 5.000,00 404,77 4.595,23 20.835,04Dez 09 1.166,67 331,63 835,04 20.000,00

56.166,67 8.563,44 47.603,23

Gesamt 300.000,00 120.000,00 180.000,00

Using the repayment table the following bookkeeping entries will result:

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At the beginning of the leasing contract:# name debit # name credit05051 Finance lease

office and other equipment - additions

200.000,00 30120

Long-term liabilities finance lease 1-5 years

174.503,78

30125

Long-term liabilities finance lea-se over 5 years

0,00

33620

Long-term liabilities finance lea-se under 1 year

25.496,22

At the end of 2004



2.777,77 05501


2.777,77


lease2.440,59 1701



1.392,74



2.187,63 33620


2.187,63

At the end of 2005



33.333,33 05501


33.333,33

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lease35.896,52 1701



24.103,48



29.132,50 33620


29.132,50

At the end of 2006



33.333,33 05501


33.333,33


lease30.867,50 1701



29.132,50



35.210,78 33620


35.210,78

At the end of 2007



33.333,33 05501


33.333,33

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lease24.789,22 1701



35.210,78



42.557,27 33620


42.557,27

At the end of 2008



33.333,33 05501


33.333,33


lease17.442,73 1701



42.557,27



47.603,23 33620


47.603,23

At the end of 2009



33.333,33 05501


33.333,33

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lease8.563,44 1701



47.603,23

At the end of 2010



30.555,56 05501


30.555,56

c) finance lease contract sale and lease back with gain on sale


historical costs 200.000,00residual value 20.000,00monthly annuity 5.000,00monthly interest rate in % 1,5916865200%beginning of leasing contract

08.12.2004

end of leasing contract 07.12.2009run time in months 60deferred income 50.000,00

Month Leasing payment

Interest Repayment Carrying amount

deferred income

200.000,00 50.000,00Dez 04 3.833,33 2.440,59 1.392,74 198.607,26 49.361,11

3.833,33 2.440,59 1.392,74

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Jan 05 5.000,00 3.161,20 1.838,80 196.768,46 48.527,78Feb 05 5.000,00 3.131,94 1.868,06 194.900,40 47.694,45Mrz 05 5.000,00 3.102,20 1.897,80 193.002,60 46.861,12Apr 05 5.000,00 3.072,00 1.928,00 191.074,60 46.027,79Mai 05 5.000,00 3.041,31 1.958,69 189.115,91 45.194,46Jun 05 5.000,00 3.010,13 1.989,87 187.126,04 44.361,13Jul 05 5.000,00 2.978,46 2.021,54 185.104,50 43.527,80Aug 05 5.000,00 2.946,28 2.053,72 183.050,78 42.694,47Sep 05 5.000,00 2.913,59 2.086,41 180.964,37 41.861,14Okt 05 5.000,00 2.880,39 2.119,61 178.844,76 41.027,81Nov 05 5.000,00 2.846,65 2.153,35 176.691,41 40.194,48Dez 05 5.000,00 2.812,37 2.187,63 174.503,78 39.361,15

60.000,00 35.896,52 24.103,48


60.000,00 30.867,50 29.132,50


60.000,00 24.789,22 35.210,78

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60.000,00 17.442,73 42.557,27

Jan 09 5.000,00 1.076,03 3.923,97 63.679,26 8.527,94Feb 09 5.000,00 1.013,57 3.986,43 59.692,83 7.694,61Mrz 09 5.000,00 950,12 4.049,88 55.642,95 6.861,28Apr 09 5.000,00 885,66 4.114,34 51.528,61 6.027,95Mai 09 5.000,00 820,17 4.179,83 47.348,78 5.194,62Jun 09 5.000,00 753,64 4.246,36 43.102,42 4.361,29Jul 09 5.000,00 686,06 4.313,94 38.788,48 3.527,96Aug 09 5.000,00 617,39 4.382,61 34.405,87 2.694,63Sep 09 5.000,00 547,63 4.452,37 29.953,50 1.861,30Okt 09 5.000,00 476,77 4.523,23 25.430,27 1.027,97Nov 09 5.000,00 404,77 4.595,23 20.835,04 194,64

Dez 09 1.166,67 331,63 835,04 20.000,00 0,00

56.166,67 8.563,44 47.603,23

Gesamt 300.000,00 120.000,00 180.000,00

Based on the repayment table, the bookkeeping entries will be the same as the previous example (b.).

If the asset has been sold at an amount higher than book value, the deferred income must be allocated over the duration of the leasing contract.At the date of sale:

# name debit # name credit17010 Bank account 100.000,00 3601

0Deferred income 50.000,00

05102 Accum. depr. – vehicles - retirements

200.000,00 05012

Vehicles - retirements

250.000,00

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At the end of 2004:

# name debit # name credit36010 Deferred income 638,89 7112

0Gain on sale 638,89

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3.4.3. Investment property3.4.3.1. Recognition /Definition

Investment property is property (land or a building-or part of a building-or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for:

(a) use in the production or supply of goods or services or for administrative purposes; or

(b) sale in the ordinary course of business.

The following are examples of investment property: (a) held for long-term capital appreciation rather than for short-term sale

in the ordinary course of business. (b) land held for a currently undetermined future use. (If an entity has

not determined that it will use the land as owner-occupied property or for short-term sale in the ordinary course of business, the land is regarded as held for capital appreciation.)

(c) a building owned by the entity (or held by the entity under a finance lease) and leased out under one or more operating leases.

(d) a building that is vacant but is held to be leased out under one or more operating leases.

Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately (or leased out separately under a finance lease), an entity accounts for the portions separately. If the portions could not be sold separately, the property is investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes.

Because there is no specific quantification of what is insignificant, it will be COMPANY policy to use the percentage of operationally used area in square meters in relation to the total square meters. If the percentage of the operationally used area is equal or less than 15 % of the total area, an investment property will be recognized.

Measurement at recognition:An investment property shall be measured initially at cost. Transaction costs shall be included in the initial measurement. If a property is held under a lease and classified as an investment property, please contact GFC. Costs are defined as follows:

(a) The cost of a purchased investment property comprises its purchase price and any directly attributable expenditure. Directly attributable expenditures include, for example, professional fees for legal services, property transfer taxes and other transaction costs.

(b) The cost of a self-constructed investment property is its cost at the date when the construction or development is complete. Until that date, an entity applies IAS 16 (valuation of property, plant and equipment). At that date, the property becomes investment property and valuation of investment property applies.

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3.4.3.2. ValuationFor the measurement after recognition an entity may choose either:

(a) the fair value model or(b) the cost model.

It has been decided that the cost model will be applied. That means that after initial recognition, the measurement will be with the same as the measurement of “normal” property, plant and equipment (IAS 16). At every balance sheet date a possible impairment according to IAS 36 has to be considered. The depreciation rates are equal to those of property, plant and equipment as well as the straight-line depreciation method.

Exceptions to these measurements are: investment property that meets the criteria of an asset held for sale or investment property that is included in a disposal group that is classified

as held for sale.

3.4.3.3. Presentation in the Financial StatementsBalance SheetIn the balance sheet, investment property has to be shown in a separate line (line 2 of the basis reporting document).

NotesAn entity shall disclose:(a) whether it applies the fair value model or the cost model.(b) if it applies the fair value model, whether, and in what circumstances,

property interests held under operating leases are classified and accounted for as investment property.

(c) when classification is difficult (insignificant or not), the criteria it uses to distinguish investment property from owner-occupied property and from property held for sale in the ordinary course of business.

(d) the methods and significant assumptions applied in determining the fair value of investment property, including a statement whether the determination of fair value was supported by market evidence or was more heavily based on other factors (which the entity shall disclose) because of the nature of the property and lack of comparable market data.

(e) the extent to which the fair value of investment property (as measured or disclosed in the financial statements) is based on a valuation by an independent valuer who holds a recognised and relevant professional qualification and has recent experience in the location and category of the investment property being valued. If there has been no such valuation, that fact shall be disclosed.

(f) the amounts recognised in profit or loss for:(i) rental income from investment property; (ii) direct operating expenses (including repairs and

maintenance) arising from investment property that generated rental income during the period; and

(iii) direct operating expenses (including repairs and maintenance) arising from investment property that did not generate rental income during the period.

(g) the existence and amounts of restrictions on the realisability of investment property or the remittance of income and proceeds of disposal.

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(h) contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements.

In addition to the disclosures above, an entity that applies the cost model shall disclose:(a) the depreciation methods used;(b) the useful lives or the depreciation rates used;(c) the gross carrying amount and the accumulated depreciation (aggregated

with accumulated impairment losses) at the beginning and end of the period;

(d) a reconciliation of the carrying amount of investment property at the beginning and end of the period, showing the following:

(i) additions, disclosing separately those additions resulting from acquisitions and those resulting from subsequent expenditure recognised as an asset;

(ii) additions resulting from acquisitions through business combinations;

(iii) disposals;(iv) depreciation;(v) the amount of impairment losses recognised, and the amount

of impairment losses reversed, during the period in accordance with IAS 36 (Impairment of assets);

(vi) the net exchange differences arising on the translation of the financial statements into a different presentation currency, and on translation of a foreign operation into the presentation currency of the reporting entity;

(vii) transfers to and from inventories and owner-occupied property; and

(viii) other changes; and(e) the fair value of investment property. In the exceptional cases, when an

entity cannot determine the fair value of the investment property reliably, it shall disclose:

(i) a description of the investment property;(ii) an explanation of why fair value cannot be determined

reliably; and(iii) if possible, the range of estimates within which fair value is

highly likely to lie.

Accounts

# name description07310 Investment property Property which is in the ownership of

COMPANY but not being used by COMPANY and which is being rented or leased out to a third party.

07311 Investment property - additions

Self-explanatory

07312 Investment property - retirements

Self-explanatory

07313 Investment property - transfers

Self-explanatory

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# name description07314 Investment property -

exchange rate diff.For GFC use only.

07390 Accum. depr. - investment property

Depreciation account to # 07310

07391 Accum. depr. - investment property - additions

Self-explanatory

07392 Accum. depr. - investment property - retirements

Self-explanatory

07393 Accum. depr. - investment property - transfers

Self-explanatory

07394 Accum. depr. - investment property - exchange rate diff.

For GFC use only.

Related accounts

# name description64577 Depr. - investment property Current depreciation of investment

property

3.4.3.4. Description of typical transactionsA WXX-company bought a building years ago. This building is only used for business purposes of the company. Purchase costs were 250.000 LC, depreciation rate is 2% straight-line, the building has 2.000 square metres floor space. At January 1, 2005, 1.800 square metres (which is equivalent to 90 %) are rented to another company for 1.500 LC monthly. In the context of a affiliate light program the administration of the WXX company was merged with another affiliate company so that the office rooms are no longer needed and therefore were rented. At December 31, 2004, the carrying amount of the building was 150.000 LC.

Calculation:Historical costs: 250.000 LCThereof 90 % 225.000 LCThereof 2% 4.500 LC (yearly depreciation)Therefore 375 LC (monthly depreciation)

Book entry as at January 1, 2005

# name debit # name credit07311 Investment

property - additions

135.000 02313

Buildings - transfers

225.000

02973 Accum. depr. - land and buildings - transfers

90.000,00

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Monthly book entry for depreciation and rent

# name debit # name credit64577 Depr. Investment

Property375,00 0739

1Accum. Depreciation Investment property - additions

375,00

Rent:

# name debit # name credit017010 Bank account 1.500 7675

5Other interest income 1.500

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3.4.4. Goodwill3.4.4.1. Recognition /Definition

Goodwill appears basically only in connection with business combinations. Business combination means the bringing together of separate entities or businesses into one reporting entity. Business combinations can be for example

A purchase of an entity A merger A foundation of a new affiliate etc.

The COMPANY Group structure is one parent company (WAG) with only 100% affiliates worldwide, most of them foundations. Only COMPANY Corporation itself has a subsidiary which was founded (Equipro). For these 100% affiliates goodwill has no relevance. If an affiliate plans to merge or acquire a new company from January 1, 2005 on, please contact GFC.

Goodwill business transactions are only relevant on a Group level. For consolidation purposes, only GFC has to take care of the correct treatment of goodwill bookkeeping.

3.4.4.2. Valuation Not relevant for affiliates. For WAG for goodwill following the transition date: impairment must be checked annually or more frequently if events or changes in circumstances indicate that it might be impaired.

3.4.4.3. Presentation in the Financial StatementsBalance SheetIn the balance sheet, goodwill has to be shown in a separate line (line 3 of the basis reporting document).

NotesNot relevant for affiliates.

Accounts

# name description07710 Goodwill from business

combinationsFuture economic benefits arising from assets that are not capable of being individually identified and separately recognised. For GFC purposes only.

07711 Goodwill from business combinations – additions

For GFC use only

07712 Goodwill from business combinations – retirements

For GFC use only

07713 Goodwill from business combinations – transfers

For GFC use only

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# name description07714 Goodwill from business

combinations – exchange rate differences

For GFC use only

07720 Accum. ammor. on goodwill

For GFC use only

07730 Fair value adjustment For GFC use only

Related accounts

# name description64590 Amort./impairment -

goodwillCorresponding account to # 07710.

3.4.4.4. Description of typical transactionsNot relevant for affiliates.

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3.4.5. Other Intangible Assets3.4.5.1. Recognition

An intangible asset is an identifiable non-monetary asset without physical substance. It shall be recognized to the extent that the cost exceeds the limit for capitalization. Common examples would be computer software, web site costs and patents (development costs, not research) as well as internal costs of software implementation and testing. Such assets must be identifiable, controlled by the Company and give future economic benefits. It must be probable that the future economic benefits will flow to the Company and the cost must be able to be measured reliably.

It will be COMPANY policy to consider the licenses for MS Office and operating systems part of the cost of the hardware, as they are normally already installed on the computer. Licenses for other programs such as Baan will be capitalized as an intangible asset. At the moment, these costs will include employee costs for implementation and testing for such large projects, as long as these costs are associated with the developmental phase. Training and normal operating costs will be expensed.

It is COMPANY policy to recognize only patent costs under IFRS. Examples of such costs to be recognized are legal and government filing fees, also costs for the extension of patents; annual renewal fees will be expensed.

An intangible asset shall be derecognized on disposal or when no future economic benefits are expected from its use or disposal. The gain or loss shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset. Net gains or losses shall be recognized under other income or expenses.

3.4.5.2. ValuationCOMPANY shall account for intangible assets using the cost model (not fair value). It shall be COMPANY policy to expense all items under € 1.000 or the equivalent in local currency ($1.000 for WC). This amount can be rounded to a round amount in local currency and does not have to be changed with currency fluctuations. Exceptions will be made if the limit for tax purposes is lower, i.e. for WAG € 410.

The cost of an intangible asset shall be allocated using the straight-line method over its useful life. Amortization shall begin when the asset is available for use. Residual value will be zero. See also section 3.4.1. Impairment of Assets.

Intangible assets shall be depreciated using the following useful lives:

years

Computer software 3Patents life of patent

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Balance SheetOther Intangible Assets have to be shown in line 4 of the basic reporting documents (see attachment 1).

Notes

In the notes, details of accounting policies (measurement basis, depreciation methods and useful lives) and fixed asset movements must be shown. This will be done with a roll forward in the above detail. In case any assets are restricted or there are any contractual commitments, these must also be disclosed. In the case of impairment additional disclosures are required.

The following accounts will be used in the Group Chart of Accounts. For each category of fixed assets there are separate accounts for the initial cost and for accumulated depreciation. There are also separate accounts for the additions, retirements and transfers during the current year. The accounts for exchange rate differences are for GFC use only. If in your country you make inflation adjustments to fixed assets, these should be accumulated in separate accounts for each category and reported to either the additions or retirements account as applicable for that category.

Accounts

# name description07610 EDP-software Purchase cost of software including

implementation costs but not training costs.

07620 Patents Cost of applying and keeping patents such as filing fees, extension fees, etc.

07680 Accum. amort. - EDP-Software

corresponding acc. depreciation account to # 07610.

07690 Accum. amort. - patents corresponding acc. depreciation account to # 07620.

07810 Payments on account intangible assets

All advance payments for recognizable intangible assets which have not yet been taken into service.

07910 Other intangible assets Other intangible assets – not likely to be used.

07920 Accum. amort. other intangible assets

corresponding acc. depreciation account to # 07910.

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Related accounts

# name description64580 Depr. - EDP Software Depreciation on EDP software when the

useful life is greater than 12 months and costs over 1.000 Euro.

64585 Depr. - patents Patents that are intangible assets and are being expensed over their useful life, when the useful life is greater than 12 months and over 1.000 euros.

64590 Depr. / impairment - goodwill

Impairment charges / depreciation on goodwill.

64595 Depr. / impairment - other intangible assets

Impairment charges / depreciation on other intangible assets.

64599 Impairment others Impairment charges against assets in general (Except 64590/64595).

3.4.5.4. Worksheets

A roll-forward of tangible and intangible assets is necessary to provide all the information necessary for the notes to the financial statements. This can be prepared from the detailed accounts for additions, retirements, etc. Therefore a separate worksheet will not be necessary.


See section 3.4.1.5.

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3.4.6. Investments3.4.6.1. Recognition /Definition

Investments are defined as shares in companies which shall be included in the consolidation except if they are of a minor importance for the Group. These shares can be shares in subsidiaries, in associated companies or in joint ventures. The share property has to be more than 20 %. Shares in companies with a share property under 20 % must be shown under other non-current assets / long-term marketable securities if the entity intends to hold them on a long-term basis. For the COMPANY Group, only COMPANY Corporation and COMPANY Construction Equipment AG show investments in their balance sheet (Equipro is qualified as shares in affiliated companies as well as WAG’s investments in all affiliates). For all the other affiliates of the COMPANY Group this section of the balance sheet is not relevant.

In case one affiliate founds or acquires a new company, please contact GFC.

In the COMPANY Group all investment accounts should zero out after the consolidation procedure.

3.4.6.2. Valuation (includes COMPANY policy)Only relevant for WC and WAG: an investment in an entity shall be accounted for at cost. Loans to investments shall be concluded with an interest rate at market price.

3.4.6.3. Presentation in the Financial StatementsBalance SheetInvestments have to be shown in a separate line of the balance sheet (see line 5 of basis reporting documents / balance sheet).

Notes

The following disclosures shall be made:(a) the nature of the relationship between the parent and a subsidiary

when the parent does not own, directly or indirectly through subsidiaries, more than half of the voting power;

(b) the reasons why the ownership, directly or indirectly through subsidiaries, of more than half of the voting or potential voting power of an investee does not constitute control;

(c) the reporting date of the financial statements of a subsidiary when such financial statements are used to prepare consolidated financial statements and are as of a reporting date or for a period that is different from that of the parent, and the reason for using a different reporting date or period; and

(d) the nature and extent of any significant restrictions (e.g. resulting from borrowing arrangements or regulatory requirements) on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances.

When separate financial statements are prepared for a parent that elects not to prepare consolidated financial statements because (only possible under certain circumstances), those separate financial statements shall disclose:

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(a) the fact that the financial statements are separate financial statements; that the exemption from consolidation has been used; the name and country of incorporation or residence of the entity whose consolidated financial statements that comply with International Financial Reporting Standards have been produced for public use; and the address where those consolidated financial statements are obtainable;

(b) a list of significant investments in subsidiaries, jointly controlled entities and associates, including the name, country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting power held; and

(c) a description of the method used to account for the investments

When a parent venturer with an interest in a jointly controlled entity or an investor in an associate prepares separate financial statements, those separate financial statements shall disclose:

(a) the fact that the statements are separate financial statements and the reasons why those statements are prepared if not required by law;

(b) a list of significant investments in subsidiaries, jointly controlled entities and associates, including the name, country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting power held; and

(c) a description of the method used to account for the investments listed under (b); and shall identify the financial statements prepared in accordance with paragraph 9 of this Standard, IAS 28 and IAS 31 to which they relate.

Accounts

# name description08110 Shares in affiliated

companiesIncludes shares in affiliated companies with a share property over 50 %. These affiliated companies are normally consolidated. Only under rare circumstances (e.g. shares have on a group level an importance which is less essential) these shares are not consolidated.

08190 Adjustments to shares in affiliated companies

Adjustments to # 08110

08210 Loans to affiliated companies

Loans to affiliates as described under # 08110

08290 Adjustments to loans to affiliated companies


08310 Investments Includes shares in companies with a share property over 20% up to 50 %. These affiliated companies are normally consolidated at equity.

08390 Adjustments to investments


08410 Loans to investments Loans to investments as described under # 08310

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# name description08490 Adjustments to loans

to investmentsAdjustments to # 08410

Related accounts

# name description76210 Income from invest-

ments in affiliates Includes income from those investments as described under # 08110 and # 08310.

3.4.6.4. Description of typical transactionsNot relevant on an affiliate level.

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3.4.7. Deferred Taxes3.4.7.1. Recognition /Definition

Deferred tax assets are the amounts of income taxes recoverable in future periods in respect of:

(a) deductible temporary differences;(b) the carry forward of unused tax losses; and(c) the carry forward of unused tax credits.

Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences

Temporary differences are differences between the carrying amount of an asset or liability in the balance sheet and its tax base. Temporary differences may be either:

(a) taxable temporary differences, which are temporary differences that will result in taxable amounts in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled; or

(b) deductible temporary differences, which are temporary differences that will result in amounts that are deductible in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled.

An example of temporary differences is the use of different depreciation methods for financial statements and tax purposes or a deduction for doubtful receivables or obsolete inventory that is not deductible for tax purposes.

Permanent differences do not result in deferred taxes since the differences will never reverse. An example would be non-deductible expenses or non-taxable income.

The concept for the calculation of deferred taxes is the liability method (temporary concept). For this concept, the focus is on the balance sheet and deferred taxes generally include any difference in assets and liabilities between tax base and "commercial" balance sheets even differences not affecting the income statement (e.g. cash flow hedges).

3.4.7.2. Valuation (includes COMPANY policy)Deferred tax assets and liabilities should be measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.

The measurement of deferred tax liabilities and deferred tax assets should reflect the tax consequences that would follow from the manner in which the enterprise expects, at the balance sheet date, to recover or settle the carrying amount of its assets and liabilities.

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Although deferred tax assets are classified as non-current assets they shall not be discounted.

An enterprise should offset deferred tax assets and deferred tax liabilities if, and only if:

(a) the enterprise has a legally enforceable right to set off current tax assets against current tax liabilities; and

(b) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either:

(i) the same taxable entity; or(ii) different taxable entities which intend either to settle current

tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

An enterprise shall not offset deferred tax assets / liabilities against current tax assets / liabilities.

The calculation of deferred taxes should be done on a quarterly basis. For monthly reporting, an average tax rate should be used. The reduction in value of a capitalized deferred tax asset must be reported to GFC in any case. This may be the case if it appears improbable that there will be sufficient future taxable earnings to recover tax reductions.


Balance SheetDeferred tax assets are classified as non-current assets and must be shown in a separate line of the balance sheet (line 6 of basis reporting documents / balance sheet).Deferred tax liabilities are classified as non-current liabilities and must be shown in a separate line of the balance sheet (line 32 of basis reporting documents / balance sheet).

NotesSee disclosures shown under 3.4.12.3. (Current tax receivables / notes).

Accounts

# name description08610 Deferred tax asset Amount of income taxes recoverable in

future periods in respect of deductible temporary differences and carry forward of unused tax credits

08620 Deferred tax asset (tax carry forward)

Amount of income taxes recoverable in future periods in respect of unused tax loss carry forward

08630 Deferred tax asset - consolidation

For GFC use only

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Related accounts

# name description30410 Deferred tax liabilities Amount of income taxes payable in future

periods in respect of taxable temporary differences

30420 Deferred tax liabilities - consolidation

For GFC use only

79330 Deferred income tax - income

Changes in deferred tax asset / liabilities from one reporting period to the other reporting period which result in an income

79335 Deferred income tax - expense

Changes in deferred tax asset / liabilities from one reporting period to the other reporting period which result in an expense

3.4.7.4. WorksheetsSee Attachments 8 a-c

The deferred taxes from temporary differences (attachment 8c) shall be reported quarterly. Deferred taxes can exist for different reasons:

1) Deferred tax assets because of a tax loss carry forward:Only applicable for those affiliates which definitely have a tax loss carry forward. If this is the case and the tax loss carry forward was found valuable by your auditors and a deferred tax asset should be booked, please inform GFC.

2) Deferred tax asset out of consolidation:Only relevant on a Group level for GFC, no relevance for the affiliates (WC should check if they have intercompany eliminations with Equipro which affect the income statement and on which deferred taxes should be calculated).

3) Deferred tax out of cash flow hedging activities or any similar transactions which are recognised directly in equity:Only relevant for WC and very rare contracted from WC. Therefore no separate worksheet for calculation of deferred taxes. Information should be made available otherwise.

4) Deferred taxes out of “normal” temporary differences (worksheet 8c):This worksheet has to be filled out and checked if the links given are correct. For calculating deferred taxes please go through the following steps: Find out if the differences between your tax and IFRS balance sheet

items. Examples:o under IFRS, vehicles have to be depreciated over 6 years,

according to local tax law, they have to be depreciated over 2 years

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o under IFRS, vehicles have to be depreciated up to zero, according to local tax law, they have to be depreciated up to a residual value

o according to IFRS provisions for future losses are forbidden, under local tax law, they can be recognised

o under IFRS, inventories are valued at FIFO method, according to local tax law, inventory measurement at LIFO is allowed.

Fill in the IFRS balance sheet amounts and the corresponding tax balance sheet amounts.

Difference should be calculated automatically, please check. Give in the local tax rate. Please keep in mind the information given

under section 3.4.7.2. (tax rates) Deferred taxes should be calculated automatically by multiplying

difference IFRS / tax with the tax rate, please check. Deferred taxes are qualified as a deferred tax asset or deferred tax

liability, please check. The following table will be a good help:

Deferred taxes assets and liabilities are summed up and end in one balance (asset or liability), please check.

Only under the circumstances that you recognise a deferred tax asset out of a tax carry forward (see description above) please fill in the amount under “DTA on tax loss carry forward”

Total of deferred tax asset / liability out of temporary differences and tax loss carry forward is generated, please check.

Give in the amount of the deferred tax asset / liability as at the reporting period before.

Book the amount which is generated automatically.

CASE I

Assets (IFRS b/s)

< Assets

(tax b/s)

Carrying amount under commercial law or IFRS differs from that under tax law

CASE II

Liabilities (IFRS b/s)

> Liabilities (tax b/s)

CASE III

Assets (IFRS b/s)

> Assets

(tax b/s)

CASE IV

Liabilities (IFRS b/s)

< Liabilities (tax b/s)

Deferred tax assets Deferred tax liabilities

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If there results an amount in the column “deferred tax asset” please book:

# name debit # name credit79335 Deferred income

tax - expenseXX 08910/

30410Deferred tax asset / liability

XX

If there results an amount in the column “deferred tax liability” please book:

# name debit # name credit08910/30410

Deferred tax asset / liability

XX 79330

Deferred income tax - income

XX

The major components of income tax (see attachment 8 b) as described below shall be reported on a quarterly basis.

LC 000 2005 2004

current income taxdissolution of tax provisions / tax liabilitiesadjustment for prior yearsdeferred income tax

How to fill out the major components of income tax for quarterly reporting

current income tax:part of income tax which belongs to the current income tax based on the tax calculation for tax authorities.

dissolution of tax provisions / tax liabilities:includes those parts of tax provisions which were not consumed and have to be dissoluted.

refund for prior years:self-explanatory.

deferred income tax:part of income tax which includes changes in deferred tax asset / liabilities from one reporting period to the other reporting period which result in an income.

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A tax reconciliation (attachment 8a) as described below shall be reported for year-end closing.

LC 000 2005 2004

expected income taxincome tax credit / reductionnon-taxable incomeprofit/loss incurred by affiliates not resulting in a tax liability/ asset from the creation/reversal of deferred taxesnon tax-deductible amortization of goodwillvariations in local tax rates in the affiliatestax adjustments for prior yearseffects from tax rate changes non-deductible tax expensesothers ( to be identified)

0 0

How to fill out the tax reconciliation for year-end-closingGFC decided that the tax reconciliation shall be provided as a reconciliation between the amount of tax expense (income) and the product of accounting (book) profit before tax multiplied by the applicable tax rate(s), disclosing also the basis on which the applicable tax rate(s) is (are) computed.

Expected income tax:Simple calculation of book profit before tax multiplied with applicable statutory tax rate.

Income tax credit / reduction:Direct reduction of taxes due to tax credits.

Non-taxable income:Examples of non-taxable income are income from investments which are not consolidated (in Germany) or interests from municipal bonds (in USA).

Profit/loss incurred by affiliates not resulting in a tax liability/ asset from the creation/reversal of deferred taxes:For GFC use only.

Non tax-deductible amortization of goodwill:For GFC use only.

Variations in local tax rates in the affiliates:

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For GFC use only.

Tax adjustments for prior years:Adjustments to tax calculations for previous years based on tax assessments on tax audits.

Effects from tax rate changesIn case that tax authorities enact a tax rate change the consequences for deferred taxes have to be shown here.

Non-deductible tax expensese.g. entertainment expenses or donations which do not reduce the taxable profit.

Others (to be identified)Includes other effects which are not mentioned in the topics above. Please specify the effect if you think it can not be allocated to the other topics.

Sum:The sum out of these effects must agree with the booked effective tax expense (income) which is shown in the income statement.


Example 1Change of deferred tax assets, liabilities and expenses between two years:

Business year 2004

Carrying Tax TemporaryAmount Base Differences

Accounts receivable 500 500 0Inventory 2.000 2.000 0Product development costs 500 0 500Investments 33.000 33.000 0Property, plant & equipment 36.000 15.000 21.000TOTAL ASSETS 72.000 50.500

Current income taxes payable 3.000 3.000 0Accounts payable 500 500 0Fines payable 0 0 0Liability for health care benefits 0 0 0Long term debt 20.000 20.000 0Deferred income taxes 8.600 8.600 0TOTAL LIABILITIES 32.100 32.100

Share capital 5.000 5.000 0Revaluation surplus 0 0 0

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Retained earnings 34.900 13.400TOTAL LIABILITIES / EQUITY 72.000 50.500

TEMPORARY DIFFERENCES 21.500

Deferred tax liability 21.500 at 40% 8.600

Deferred tax asset 0 at 40% 0

Net deferred tax liability 8.600

Book entry:

# name debit # name credit79335 Deferred income tax -

expense8.600 3041

0Deferred tax liabilities 8.600

Business year 2005



Current income taxes payable 3.570 3.570 0Accounts payable 500 500 0Fines payable 700 700 0Liability for health care benefits 2.000 0 -2.000Long term debt 12.475 12.475 0Deferred income taxes 9.020 9.020 0TOTAL LIABILITIES 28.265 26.265

Share capital 5.000 5.000 0Revaluation surplus 0 0 0Retained earnings 39.685 17.135TOTAL LIABILITIES / EQUITY 72.950 48.400


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Deferred tax asset -2.000 at 40% -800

Net deferred tax liability 9.020Less: opening deferred tax liability -8.600

Deferred tax expense 420

Book entry:

# name debit # name credit79335 Deferred income tax -

expense420 3041

0Deferred tax liabilities 420

Example 2See Example 1 BUT change of tax rate from 40% to 30% effective 01.01.2005

Business year 2005



Current income taxes payable 3.570 3.570 0Accounts payable 500 500 0Fines payable 700 700 0Liability for health care benefits 2.000 0 -2.000Long term debt 12.475 12.475 0Deferred income taxes 9.020 9.020 0TOTAL LIABILITIES 28.265 26.265

Share capital 5.000 5.000 0Revaluation surplus 0 0 0Retained earnings 39.685 17.135TOTAL LIABILITIES / EQUITY 72.950 48.400


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Deferred tax asset -2.000 at 30% -600

Net deferred tax liability 6.765Less: opening deferred tax liability -8.600

Deferred tax income -1.835

Book entry:

# name debit # name credit30410 Deferred tax liabilities 1.835 7933

0Deferred income tax - income

1.835

Presentation in the tax reconciliation

Effects from tax rate changes: 2.150 LCCalculation: 21.500 (DTL at the beginning of 2005) multiplied with 30% 6.450 LC 21.500 (DTL at the beginning of 2005) multiplied with 40% 8.600 LC

or

Calculation by changes of deferred tax items

Product development costs - 250 at 30 % - 75Property, plant & equipment + 3.300 at 30 % + 990Liability for health care benefits - 2.000 at 30 % - 600

+ 1.050 + 315Deferred income tax - income + 1.835

Effects from tax rate changes + 2.150

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3.4.8. Long-term marketable securities3.4.8.1. Recognition /Definition

Investments are generally divided into two categories: Debt securities and equity securities. A security is a share, participation, or other interest in property or in an enterprise of the issuer or obligation of the issuer that is either(a) represented by an instrument issued in bearer or registered form or, if not

represented by an instrument, is registered in books maintained to record transfers by or on behalf of the issuer or

(b) is of a type commonly traded on securities exchanges or markets or, when represented by an instrument, is commonly recognized in any area in which it is issued or dealt in as a medium for investments.

Investments in securities are grouped into three categories for accounting purposes:

Held for trading – securities acquired for the purpose of selling or repurchasing in the near term, not applicable for COMPANY companies as is not COMPANY policy.

Held to maturity – securities that the enterprise has the positive intent and ability to hold to maturity, only debt securities can be classified as held-to-maturity because, by definition, equity securities have no maturity date.

Available for sale – securities not classified as trading or held to maturity.

3.4.8.2. Valuation

Held to maturity investments:Held-to-maturity securities are accounted for at amortized cost not fair value and therefore unrealized gains and losses are not recognized. This means that the financial asset or liability is measured at initial recognition minus principal repayments plus or minus the cumulative amortization using the effective interest method of any difference between the initial amount and the maturity amount. However, changes in securities denominated in a foreign currency due to changes in the exchange rate to value the securities at the spot rate at balance sheet date are recognized. See example under 3.4.8.4.

Available for sale investments:These securities are always valued initially at fair value with the change in book values being recognized directly in equity through the statement of changes in equity until the financial asset is derecognized at which time the cumulative gain or loss previously recognized in equity shall be recognized in profit or loss. Fair value is the amount for which the asset could be exchanged or a liability settled.

3.4.8.3. Presentation in the Financial StatementsBalance SheetThe lines in the balance sheet in which these assets can be found are as follows:

Other non-current assetsMarketable securities

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NotesThe most relevant disclosures are noted in IAS 39, IAS 32 and IAS 1.

AccountsThe following accounts from the COMPANY Group Chart of Accounts are affected by investments:

# name description09510 Long-term marketable

securities Held to maturity investments with maturity dates beyond 12 months such as bonds, commercial paper, and other securitized debt but not trade receivables and loans

09590 Adjustments to long-term marketable securities

Difference between acquisition cost and market value for long-term marketable securities; this can be purchase discounts or exchange rate adjustments.

12710 Other Marketable Securities (short term)

Investments in securities which are short term in nature which could include such investments as bonds, commercial paper, and other securitized debt but not trade receivables and loans. It could also include hedge instruments.

12730 Other mkt. sec. - fair value adjustment

Difference between acquisition cost and market value for short-term marketable securities

26860 Fair value reserve Unrealized gains and losses from available for sale securities and from hedge instruments.

Related accounts

# name description76230 Unrealized gain on

marketable securities (long-term)

Increases in value that are not booked to equity such as changes in value due to exchange rate differences

76235 Gain on sale of marketable securities (long-term)

Profit account for recording the actual gain from sale of securities

76240 Unrealized loss on marketable securities (long-term)

Decreases in value that are not booked to equity such as changes in value due to exchange rate differences

76245 Loss on sale of marketable securities (long-term)

Loss account for recording the actual loss from sale of securities

76250 Unrealized gain on marketable securities (short-term)

Increases in value that are not booked to equity such as changes in value due to exchange rate differences

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# name description76255 Gain on sale of

marketable securities (short-term)

Profit account for recording the actual gain from sale of securities

76260 Unrealized loss on marketable securities (short-term)

Decreases in value that are not booked to equity such as changes in value due to exchange rate differences

76265 Loss on sale of marketable securities (short-term)

Loss account for recording the actual loss from sale of securities

76710 Interest on marketable securities

Interest income on securities which has been paid

76715 Accrued interest income

Interest income on securities which has been accrued


Example 1 (held to maturity securities):On January 1 2004, the company purchased a Euro 100.000 8% bond for Euro 92.278 with a maturity date of January 1, 2009. Interest is payable each July 1 and January 1. The discount of 7.722 (100.000 – 92.278) provides an effective yield of 10,343%. The entry to record the investment is:


marketable securities

92.278,00 17010 Bank 92.278,00

Each month, the company would accrue interest income of 8% on the face value of 100.000 (100.000 x 8% / 12 = 666,66) and would accrue for the bond discount amortization (92.278 x 10,343% / 12 – 666,66 = 128,70). Another way to calculate the discount amortization is to allocate the 7.722 over the five years (92.278 / 60 = 128,70). The interest income is recorded in interest receivable and accrued interest income while the bond amortization would be recorded in the fair value adjustment account specific to this bond.

# name debit # name credit09590 Adjustments to

long-term marketable securities

128,70 76715 Accrued interest income

795,36

13315 Interest receivable

666,66

Future monthly calculations of bond amortization would include any change in the value of the accumulated amortization due to exchange differences.

When the interest is paid on July 1 the following transaction is booked to show the interest actually paid in the Income Statement:

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# name debit # name credit17010 Bank 4.000,00 13315 Interest

receivable4.000,00

76715 Accrued interest income

4.000,00 76710 Interest on marketable securities

4.000,00

When the bond maturity is 12 months or less the value would be moved to the account 12710 Other Marketable Securities (short term) and 12730 Other mkt. sec. - fair value adjustment.

If the above investment was classified as available for sale the initial acquisition of the investment would be recorded at the fair value price which is what was paid (92.278). Each month this value would be compare to the fair value in the market, which can generally be obtained from the financial institution from which the purchase was made. If the fair value on February 1, 2004, was 93.278, the entry for the change in value from acquisition cost to fair value would be as follows:

# name debit # name credit09590 Adjustments to

long-term marketable securities

1.000,00 26860 Fair value reserve

1.000,00

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3.4.9. Hedge Accounting3.4.9.1. Recognition / Definition

Hedges are financial instruments acquired for the purpose of reducing the company’s financial risk based on the fluctuation in the value of commodities (natural gas, steel) and/or currencies (euro, yen etc.). COMPANY has in the past and may in the future use foreign currency hedges (forward or option contracts) to manage forecasted cash flows of the group or any one company within the group.For purposes of foreign currency hedging COMPANY presently uses the following derivatives: Forwards: Contracts to purchase or sell a specific quantity of a financial

instrument, a commodity, or a foreign currency at a specified price determined at the outset, with delivery or settlement at a specified future date. Settlement is at maturity by actual delivery of the item specified in the contract, or by a net cash settlement.

Options: Contracts that give the purchaser the right, but not the obligation, to buy (call option) or sell (put option) a specified quantity of a particular financial instrument, commodity, or foreign currency, at a specified price (strike price) during or at a specified period of time. These can be individually written or exchange-traded. The purchaser of the option pays the seller (writer) of the option a fee (premium) to compensate the seller for the risk of payments under the option.

IAS 39 permits hedge accounting under certain circumstances [IAS 39.88] provided that the hedging relationship isa) formally designated and documented, including the entity's risk

management objective and strategy for undertaking the hedge, identification of the hedging instrument, the hedged item, the nature of the risk being hedged, and how the entity will assess the hedging instrument's effectiveness and

b) expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk as designated and documented, and effectiveness can be reliably measured.

IAS 39 requires hedge effectiveness to be assessed both prospectively and retrospectively. To qualify for hedge accounting at the inception of a hedge and, at a minimum, at each reporting date, the changes in the fair value or cash flows of the hedged item attributable to the hedged risk must be expected to be highly effective in offsetting the changes in the fair value or cash flows of the hedging instrument on a prospective basis, and on a retrospective basis where actual results are within a range of 80% to 125%. All hedge ineffectiveness is recognized immediately in the income statement (including ineffectiveness within the 80% to 125% window). Effectiveness is measured as the change in the value of the contract divided by the change in value of the commitment.

Categories of Hedges

A fair value hedge is a hedge of the exposure to changes in fair value of a recognised asset or liability or a previously unrecognised firm commitment to buy or sell an asset at a fixed price or an identified portion of such an asset,

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liability or firm commitment, that is attributable to a particular risk and could affect profit or loss.

A cash flow hedge is a hedge of the exposure to variability in cash flows that (i) is attributable to a particular risk associated with a recognized asset or

liability (such as all or some future interest payments on variable rate debt) or a highly probable forecast transaction and

(ii) could affect profit or loss. [IAS 39.86]

A hedge of the foreign currency risk of a firm commitment may be accounted for as a fair value hedge or as a cash flow hedge.

COMPANY Policy-It is the policy of COMPANY to treat those instruments used to hedge specific forecast inflows or outflows of a foreign currency as a cash flow hedge. Similarly it is COMPANY policy to record financial instruments used to hedge net investment in equity to the degree they are effective and the portion that is ineffective to the profit and loss.

Discontinuation of Hedge AccountingHedge accounting must be discontinued prospectively if [IAS 39.91 and 39.101]

a) the hedging instrument expires or is sold, terminated, or exercised,

b) the hedge no longer meets the hedge accounting criteria - for example it is no longer effective,

c) for cash flow hedges the forecast transaction is no longer expected to occur or the entity revokes the hedges designation.

3.4.9.2. ValuationThe portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and recycled to the income statement when the hedged cash transaction affects profit or loss. [IAS 39.95, 100]

COMPANY PolicySince it is COMPANY policy to treat instruments used to hedge specific forecast inflows or outflows of a foreign currency as a cash flow hedge, to the degree that those hedges are effective they will be recorded in equity. The portion of the hedge, however, that is ineffective is to be recorded in profit and loss.If the hedged cash flows result in the recognition of a non-financial asset or liability, the entity can choose to adjust the basis of the asset or liability for the amount deferred in equity. This option has the status of an accounting policy and must be applied consistently to all such hedges. [IAS 39.98] If hedge accounting ceases for a cash flow hedge relationship because the forecast transaction is no longer expected to occur, gains and losses deferred in equity must be taken to the income statement immediately. If the transaction is still expected to occur and the hedge relationship ceases, the

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amounts accumulated in equity will be retained in equity until the hedged item affects profit or loss. [IAS 39.101(c)] If an interest rate hedge that is measured at amortised cost has been adjusted for the gain or loss attributable to the hedged risk in a fair value hedge, this adjustment is amortised to profit or loss based on a recalculated effective interest rate on this date such that the adjustment is fully amortised by the maturity of the instrument. Amortisation may begin as soon as an adjustment exists and must begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risks being hedged. The gain or loss from the change in fair value of the hedging instrument is recognised immediately in profit or loss. At the same time the carrying amount of the hedged item is adjusted for the corresponding gain or loss with respect to the hedged risk, which is also recognized immediately in net profit or loss.

The following table summarizes the accounting treatment of hedges:

Transaction Type Description of Transaction Treatment under IFRSHedge Contract – Underlying asset or liability is a future transaction on the balance sheet.

Monthly (or quarterly) revaluation of hedge contract to record gain or loss on difference between hedge rate and current forward rate (or spot if forward rates are not available).

Use the cash flow hedge accounting method:B/S – Record a hedge gain (loss) asset (liability). Also, record the gain (loss) of the effective portion by directly increasing (decreasing) equity.I/S – No impact unless there is any ineffective portion (see below). Note: If any of this hedge is considered ineffective (see IAS 39), that portion should be recorded using the fair value hedge accounting method below.

Hedge Contract – Underlying asset or liability is an existing item on the balance sheet.

Monthly (or quarterly) revaluation of hedge contract to record gain or loss on difference between hedge rate and current forward rate (or spot if forward rates are not available).

Use the fair value hedge accounting method.B/S – Adjust underlying balance sheet account balance.I/S – Record gain or loss (difference between current value and hedge rate value) in profit and loss under financial result.Note: With this method, the accounting for the hedging instrument follows the hedged item (see A/R, A/P or inventory above).

Derecognize hedge contract (Contract expires, is sold, terminated or exercised.)

Recognize the gain or loss upon derecognition.

B/S – remove the balance sheet item at its recorded value.I/S – The amount which had been shown in equity must be booked to profit and loss (financial result). There should be no additional I/S impact at this point unless there is a change between the last revaluation date and the transaction date.

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The following balance sheet positions could contain hedges or options, depending on whether they are assets or liabilities and short-term or long-term:

Investments Marketable securities Long-term Borrowings Short-term Borrowings

For accounts see section 3.4.8. (long-term marketable securities).

Disclosure requirements are defined under IAS 32. Describe the entity's financial risk management objectives and

policies, including hedging policies. [IAS 32.56] Disclose the following separately for designated fair value hedges,

cash flow hedges, and hedges of a net investment in a foreign operation (those terms are defined in IAS 39): [IAS 32.58]

o a description of the hedge; o a description of the financial instruments designated as

hedging instruments and their fair values at the balance sheet date;

o the nature of the risks being hedged; and o for cash flow hedges, the periods in which the cash flows are

expected to occur, when they are expected to enter into the determination of profit or loss, and a description of any forecast transaction for which hedge accounting had previously been used but which is no longer expected to occur.

If a gain or loss on a hedging instrument in a cash flow hedge has been recognized directly in equity, an entity should disclose the following: [IAS 32.59]

o the amount that was so recognized in equity during the period;

o the amount that was removed from equity and included in profit or loss for the period; and

o the amount that was removed from equity during the period and included in the initial measurement of the acquisition cost or other carrying amount of a non-financial asset or non- financial liability in a hedged highly probable forecast transaction.


Example of foreign currency hedge

Abbreviations:LC means local currencyFC means foreign currency

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On June 30 the company enters into a forward exchange contract to receive FC 100.000 and deliver LC 109.600 on June 30 of the following year. The twelve month forward rate is 1,096. At the time this is contracted the initial cost and fair value are zero. The company designates the forward contract as a hedging instrument in a cash flow hedge of a planned purchase of inventory in May of the following year with payment on June 30 of the following year. At this time there is no recorded entry since the fair value is zero.

On December 31 the six month forward rate is now 1,092. Since the original contract was purchase at a rate of 1,096 the company now must record the change in fair value. This would be calculated as follows:

Contract rate: FC 100.000 for LC of 109.600Market rate: FC 100.000 for LC of 109.200Change in fair value LC of 400Assumed tax rate of 40%

Entries:

# name debit # name credit26860 Fair value reserve LC 240 33230 Other short term

borrowingsLC 400

08610 deferred tax asset LC 160

On March 31 of the following year the three month forward rate is 1,074. The previous fair value was 1,092 and now the company must record the change in fair value to the current market rate. This would be calculated as follows:

Previous fair market rate: FC 100.000 for LC of 109.200Current market rate: FC 100.000 for LC of 107.400Change in fair value: LC of 1.800Assumed tax rate 40%

Entries:

# name debit # name credit26860 Fair value reserve LC 1.080 33230 Other short term

borrowingsLC 1.800

08610 Deferred Tax Asset

LC 720

In May the inventory is received at the current FC rate of 1,074. The entries are as follows:

# name debit # name credit11010 Inventory 107.400 33010 Accounts Payable 107.400

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On June 30 of the following year the contract is used to pay for the inventory commitment and the current rate is 1,074. The entries are as follows:

Payment to supplier for FC 100.000 at forward contract rate of 1,096

# name debit # name credit33120 Accounts Payable 107,400 17010 Bank 109,60011010 Inventory LC 2,200 26860 Fair value

reserveLC 1,320

33230 Other short term borrowings

LC 2,200 08610 Deferred Tax Asset

LC 880

The hedge accounts are cleared to zero. As this was a cash flow hedge of a planned inventory purchase the accounting for the actual cost first is recorded in inventory and then is transferred to the profit and loss as the inventory is consumed.

Example of option currency hedge:

On June 30 the company purchases a foreign currency option to buy FC 100.000 on the following June 30 at a rate of LC1,07. The cost of the option which is paid up front is LC 12.000.In acquiring options, there are two entries to be made: The first entry is to amortize the cost of the purchase over the time line. In this case the option covers twelve months at a cost of LC 12.000. This monthly entry is as follows:

First the purchase:

# name debit # name credit 12710 Other marketable

securities (short-term)

LC 12.000 17010 Bank LC 12.000

Every month the following entry is made:

# name debit # name credit76260 Unrealized loss

on marketable securities (short-term)

LC 1.000 12710 Other marketable securities (short-term)

LC 1.000

The second entry only occurs when the option is considered in the market. In this case, the future rate at the expiration of the contract would have to be higher than the option rate of 1,07. For example purposes we will use a rate of 1,09. At this point you would establish an additional hedge currency asset for the change in market value. The option is to purchase FC 100.000 at LC rate of 1,07 and the market rate is now 1,09. The change in value is LC .02 times the FC 100.000 or LC 2.000. Like the forward contract this entry is as follows:

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# name debit # name credit 12710 Other marketable

securities (short-term)

LC 2.000 26860 Fair value reserve

LC 1.200

30410 Deferred tax liabilities

LC 800

Tax rate assumed is 40%.

If at the time the option expires all rates remain the same the entries would be as follows again assuming this was used for the purchase of inventory:

# name debit # name credit11010 Inventory 109.000 33010 Accounts Payable 109.000

Payment with option:

# name debit # name credit33010 Accounts Payable 109.000 17010 Bank 107.00026860 Fair value reserve 1.200 11010 Inventory 2.00030410 Deferred tax

liabilities 800 12710 Other


2.000

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3.4.10. InventoriesInventories are assets: held for sale in the ordinary course of business, in the process of production for such sales; or in the form of materials or supplies to be consumed in the production

process or in the rendering of services

3.4.10.1. Measurement of Inventories

Inventories shall be measured at the lower of cost or net realizable value.

3.4.10.2. Cost of Inventories

The cost of inventories shall comprise all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition.

3.4.10.2.1. Cost of purchase

Purchase price+ import duties and other taxes + transportation + handling costs directly attributable to the acquisition - trade discounts, rebates and other similar items= costs of purchase

WAG policy on cost of purchase Purchase Price The purchase price used for calculation of cost of purchase is the latest price charged by the supplier (last price). This approximates the cost formula of FIFO. That means that for all affiliates using Baan, last price has to be chosen as the basis for the calculation of standard costs in the session “ticpr1101m000.“

Material Overhead Costs / incidental acquisition expenses

Material Overhead costs must consist of the following cost buckets:

Department /cost centre

Accounts Key for allocation to CoS

Building costs QmPurchasing All accountsReceiving Focus Factories

All accounts

All Freight in and handling costs

All Customs duties and other taxes

All Depreciation on tooling at suppliers

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Receiving Focus Factories is thereby only relevant for producing companies.

Thus the following components of purchase costs are covered:

import duties and other taxes transportation handling costs directly attributable to the acquisition

Trade discounts and rebates granted by supplier

A global percentage for cash discounts has to be deducted from the inventory value as a whole by affiliate level.

Exchange differences

Exchange differences directly arising from the recent acquisition of inventories invoiced in a foreign currency must not be capitalized but cash flow hedges may be (see section 3.4.9.4.)

3.4.10.2.2. Costs of Conversion

Definition of Costs of Conversion

Costs of Conversion are calculated only at the producing companies WAG, WC, WPM.

IFRS does not generally offer options for the calculation of conversion costs. All the costs that are related to production must be part of the conversion costs.

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IFRSDirect costsPurchase price IncludedDirect conversion costs IncludedSpecial direct costs of conversion IncludedOverhead costsMaterial Overhead Costs Included Overhead costs of production IncludedAdmin. costs of material IncludedDepreciation (production related) IncludedProduction related admin. costs IncludedAdmin. costs of sales departments ExcludedOther general administration costs ExcludedCosts for voluntary social benefits, social facilities, retirement agreements if related to production

Included

Other Costs for voluntary social benefits, social facilities and retirement agreements if not related to production

Excluded

Costs for outside capital ExcludedTaxesTaxes on assets (production related) (Substanzsteuern) Included

Taxes on Income and other taxes on assets ExcludedR&D Costs Basic/fundamental research ExcludedCosts for developing new products IncludedCosts for further development of products IncludedSelling costs ExcludedOther costsIdle time costs ExcludedCosts for storage of finished goods Excluded

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Cost centre of conversionProducing companies will use the cost-centre to allocate costs to conversion.The following cost-centres must be part of conversion costs:

WAG department/cost centres

WC department/cost centres

Allocation

Productive FF1 – concrete Rammers FFFF2 - plates Plates FFFF3 – demolition Roller assemblyFF5 – spare parts Roller machiningPaint shop Concrete assemblyHardening / heat treatment

Concrete machining

Saws Generator FFStructural steel engineering

Fabrication

WeldingPaint

WAG department/cost centres

WC department/cost centres

Allocation

Non – productive

Quality management / FF quality

Quality

Tool design / tool crib / tool grinding

Tool design/tool crib

Receiving FF Production warehouse

FF buildings, doormen

Production admin.

MaintenancePayroll FFTraining centreCasino/social facilitiesEnergy supplyCar pool

Other production related admin.

HR costs included in payroll production

HR department Headcount

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costsEDP EDP Baan users

Conversion costs – other production related administration costsAccording to IFRS, production related administration costs have to be included in the conversion costs.

The following departments are considered as being subject to this treatment: HR EDP/business systems

(see above)

R&D CostsR&D costs must not be capitalized as conversion costs.

Costs for outside capital Costs for outside capital must not be capitalized.

TaxesTaxes paid on assets used in the production process are part of the conversion costs.

Idle time costs / extraordinary costsIdle time costs have to be excluded from the conversion cost.

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Provisions and accrualsIt will be general practice to allocate provisions and accruals to cost centres for monthly, quarterly and year end closing. Thus, as provisions are caused by the conversion processes, they must be allocated to the cost centres for production.

3.4.10.3. Net Realizable Value

Definitions

Net Realizable value is the estimated selling price in the ordinary course of business less:

estimated costs of completion cash discounts granted to customers estimated costs necessary to make a sale

Net realizable value refers to the net amount that an entity expects to realize from the sale of inventory in the ordinary course of business. Fair value reflects the amount for which the same inventory could be exchanged between knowledgeable and willing buyers and sellers in the marketplace. The former is an entity-specific value; the latter is not. Net realizable value for inventories may not exceed fair value less costs to sell.

WAG policy for Net Realizable Value

Net realizable value should be defined as follows:

Estimated selling price = average selling price per affiliate and item- Cash Discount = percentage of cash discount to COS per affiliate - Estimated cost = percentage for freight out and commission for sales force = Net Realizable Value

3.4.10.4. Intercompany profit elimination

Processes for quarterly and year end consolidation should not differ significantly to ensure that changes in inventory are not caused by changes in the valuation process.

On a quarterly basis, profit elimination should be made per item, but only for new machines in order to reduce complexity. New machines would be sufficient as this represents the major part of the inventory value.

This will require affiliates to provide their inventory on a per item basis to GFC every quarter (for machines).

For year end, affiliates will have to report in their inventory on a per item basis for the whole inventory (including spare parts).

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Overhead costs (like duty, freight, etc.) included in inventory by affiliates must not be eliminated.

Notes: Basic Structure of Inventory / Implications on Chart of accounts / Disclosures

For reporting in the notes, inventory should be structured as follows:

Raw Material Work in Progress Finished Goods Advances paid to suppliers

Inventory at standard cost and reserves for net realizable value will be booked on separate accounts.

Cost accounts will require compulsory accounting for cost-centres.

Separate accounts for the allocation of non-productive to productive cost-centres are necessary.

Disclosures

IAS 2.36-39:

§36: “The financial statement shall disclose:

the accounting policies adopted in measuring inventories, including the cost formula used

the total carrying amount of inventories and the carrying amount in classifications appropriate to the entity;

the carrying amount of inventories carried at fair value less costs to sell the amount of inventories recognized as an expense during the period the amount of any write-down of inventories recognized as an expense

in the period the amount of any reversal of any write-down that is recognized as a

reduction in the amount of inventories recognized as expenses in the period

the circumstances or events that led to the reversal of a write-down of inventories

the carrying amount of inventories pledged as security for liabilities

Process requirements for inventory evaluation

Weekly calculation of standard costs: In order to minimize price variances it will be a Group policy to calculate standard costs on a weekly basis.

Correct book values for quantity of inventory on stock: As counting of inventory is too time consuming for quarterly closing affiliates will be required to always show correct book values for quantity on stock. This will require the affiliates to adapt the standards of perpetual inventory to their stock-keeping.

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Inventory differences caused by the counting of inventory should be taken to measure the correctness of book values of inventory.

Allocations of non-productive to productive cost centres

It will be general policy that allocations of non-productive cost centres to productive cost centres are done as general ledger entries.

Presentation of demonstration machines

One thing particular to COMPANY is the treatment of machines. Demonstration machines are used by COMPANY sales representatives for demonstrations to customers and are sometimes left with the customer for a certain time as a trial period. In certain cases these machines may be lent or rented for a short time to customers to cover the time period until a broken machine has been repaired. In addition some customers receive consignment stock to be sold at a later date. In all of these cases the machines remain the property of COMPANY and are shown in COMPANY inventory. The demonstration machines must be revalued at net realizable value. In all of the above cases, the machines will eventually be sold.

Only when machines are part of a rental fleet at a company actively engaged in the rental business will these machines be booked into fixed assets and depreciated.

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3.4.11. Trade receivables3.4.11.1. Recognition / Definition

An account receivable must be recognized initially when the goods have been delivered and the claim of the agreed compensation exists. For contracts for sale, the receivable has to be accounted for at the time of the changing of prospects and risks, e.g. time of delivery to a carrier.This means that a firm commitment to sell goods or services is generally not recognized until at least one of the parties has performed under the agreement. The asset is recognized at the time when the goods or services have been shipped (IAS 39.AG5b).

Trade receivables as financial instruments must be put in the categories of IAS 39.9.There are the following categories: At Fair value through Profit and Loss (Held for trading) Held-to-maturity Investments Loans and Receivables Available-for-Sale Financial Assets

The classification in a category of IAS 39.9 has consequences regarding the valuation of this asset.

COMPANY policy:In the COMPANY Group, all receivables are classified in the group loans and receivables.

3.4.11.2. Valuation

Initial measurement of trade receivables: When a trade receivable initially is recognized, it is measured at fair value plus transaction costs that are directly attributable to the acquisition of the trade receivable. The fair value of a trade receivable on initial recognition is normally the transaction price.

Subsequent measurement of trade receivables:For subsequent measurement, trade receivables in the COMPANY Group are classified as loans and receivables. A receivable classified to the category loans and receivables must be measured at amortized cost (IAS 39.46). If there are no substantial indications of a decline in value and no impairment test has to be done, the receivable is measured at the initial fair value. A necessary write-down to the fair value of the category loans and receivables is booked to the profit and loss.

COMPANY policy is that receivables in foreign currencies are measured at the reporting date at spot rate (IAS 21.23a). A receivable in a foreign currency can be subsequently restated at a value above the initial value.

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Example:Receivable 90 USDConversion rate 1 USD = 1,1 EURInitial value: 90 x 1,1 = 99 EURClosing rate 1 USD = 1,2 EURConversion at closing date: 90 x 1,2 = 108 EUR

Interest rates can be a component of the receivable. In the case of a variable interest rate, a revaluation with the latest interest rate at the reporting date must be made. Gains and losses between initial and subsequent measurement are recognized in the profit and loss.

In the case of interest-free receivables, there is a difference between the acquisition costs and the fair value. The receivable has to be measured at the fair value (IAS 39.43). For short-term receivables, no discounting is required due to materiality. These short-term receivables are measured regularly with the original invoice amount. Long-term receivables with a due date longer than 1 year are to be discounted. The fair value is estimated as the present value of all future cash receipts discounted using the market rate of interest for a similar receivable with a similar credit rating. Any additional amount lent is an expense or a reduction of income, unless it qualifies for recognition as some other type of asset.

Example:As of 31.12.2004, Company A has an interest-free receivable against Company B with an amount of 1.331 and a due date of 31.12.2007. The market rate of interest for this receivable is 10%. The present value of all future cash receipts (= fair value) is calculated as 1.331 / (1,1)3 = 1.000. As there is no additional asset for the differing amount of 331, it is booked as an expense to the profit and loss.

# name debit # name credit12210 Receivables 1.000,00 4101

0Sales 1.331,00

Expense 331,00

Impairment test:An impairment test has to be performed if substantial information showing evidence of a decline in value is available. With regards to receivables, the following circumstances can indicate the need to perform an impairment test e.g. (IAS 39.59):

significant financial difficulty of the debtor a breach of contract, such as default or delinquency in interest or

principal payments the lender granting to the borrower a concession that the lender would

not otherwise consider it becomes probable that the borrower will enter bankruptcy or other

financial reorganization

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observable data indicating that there is a measurable decrease in the estimated future cash flows

adverse changes in the payment status of borrowers in the group (e.g. an increased number of delayed payments)

national or local economic conditions that correlate with defaults on the assets in the group (e.g. an increase in the unemployment rate in the geographical area of the borrowers, a decrease in property prices for mortgages in the relevant area, or adverse changes in industry conditions that affect the borrowers in the group)

To revalue financial assets which are measured at cost, the future cash flows must be estimated and discounted at the financial asset’s original effective interest rate. The amount of the loss shall be recognized through the profit and loss by using a specific allowance account.

The principle of individual evaluation is always used for the impairment test of receivables. The single identified receivables, which must be impaired by the above mentioned reasons describing impairment, must be separated from the receivables which are not impaired singly. If there is substantial information for a decrease in the future cash flows (e.g. experiences from the past) and an individual evaluation of the receivables is not possible, booking a lump-sum allowance for a group of receivables is allowed (IAS 39.64).

COMPANY Group calculation of specific and lump-sum allowances:For the Group, the following circumstances must result in a reserve for receivables (specific allowance for bad debts):

significant financial difficulty or other substantial circumstances that indicates a likelihood of bad debts

the lender granting to the borrower a concession it becoming probable that the borrower will enter bankruptcy or other

financial reorganization

In the case of bankruptcy, the allowance for these receivables should generally be calculated as 100% of the accounts receivable for this customer minus tax. If there is reasonable information to calculate incoming payments of a bankruptcy customer, using a lower percentage rate is also allowed.In cases where an account has been submitted to a collecting agency or legal proceedings have been initiated, a minimum allowance of 50% should be calculated. If substantial information indicates a higher risk of default than 50%, increasing the allowance percentage rate in these cases on the affiliate level is allowed.

For other circumstances which affect the fair value of a receivable (examples): a customer has cash problems causing delayed payments the customer received several reminders and has not paid yet; or the due date of the receivable is more than 90 days

the affiliate should calculate the allowance percentage based on their experience.

No allowance (lump-sum or specific allowance) for doubtful debts against affiliates in the COMPANY Group is allowed.

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The measurement of receivables from customers abroad (not affiliates) should be handled separately from the domestic receivables. Receivables from these customers should only be adjusted in the form of a specific allowance in the case of bankruptcy. Lump-sum allowances for receivables from customers abroad are not allowed, because there were not material losses on these receivables in the past.

If it is not possible to identify a single event that caused the impairment, there must be observable data indicating a measurable decrease in the estimated future cash-flows from a group of financial assets. This risk must be taken into consideration in the form of a lump-sum allowance.

The percentage rate for the lump sum allowance on a consolidated basis is defined at 1,5%. The booked lump-sum allowances by the affiliates are revalued for consolidation by GFC. The lump sum allowance percentage rate will be checked every year by GFC and possibly adjusted. At the affiliate level, every entity has to take into account that if risks for receivables exist which are not covered by a specific allowance, a lump-sum allowance must be booked by the affiliate to meet the IFRS requirements.


Balance Sheet:For presentation in the balance sheet, trade receivables must be split into a current portion (maturity within 1 year) and a non-current portion (maturity longer than 1 year). The receivables with a maturity within 1 year are shown in the balance sheet under the position trade receivables. The receivables with a maturity longer than 1 year are presented in the balance sheet under the position other non-current assets.

Notes:Financial instruments shall be grouped into classes that are appropriate to the nature of information. For the financial instrument class loans and receivables, the following disclosures should be given:

Information about the nature of the financial instruments, (e.g. trade receivables or other receivables) including information that may affect the amount, timing, certainty of future cash-flows (IAS 32.60).

Accounting policies and methods adopted, including the criteria for recognition and the basis of measurement applied (e.g. at cost, amortized costs, fair value or maturity). Also, information regarding the risk of default is requested.

If significant risks of financial assets or of a class of financial assets exist, the requested information in IAS 32.52 must be presented in the notes. This information includes currency risks by floating exchange rates for receivables in a foreign currency and risks that affect the fair value of a receivable by changing interest rates.

If a financial asset has been transferred or an arrangement for transferring the financial asset has been concluded, the entity shall disclose the requested notes in IAS 32.94.

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Accounts:The following accounts of the COMPANY Group Chart of Accounts are affected by trade receivables:

# name description09620 Long-term portion of

notes receivableSelf-explanatory

09621 Notes receivable – fair value adjustment

Self-explanatory

12210 A/R Self-explanatory12250 A/R fair value

adjustmentsSelf-explanatory

12280 Allowance for bad debts – specific

Self-explanatory

12290 Allowance for bad debts – general

Self-explanatory

12310 Drafts Self-explanatory12410 Notes receivable –

current portionSelf-explanatory

12420 Notes receivable – fair value adjustment

Self-explanatory

Receivables against affiliates are shown under other current assets. For more details see chapter 3.4.12.

Current recognition and derecognition are booked to the account 12210 for third parties and 13110 for affiliates. Fair value adjustments for IFRS purposes (e.g. foreign currency conversion) are booked to the account 12250. The specific and general allowances must be booked separately to the accounts 12280 and 12290. All bookings regarding drafts must be summarized to the account 12310. This concerns the booking of the draft note and the booking of transferring the draft to the bank.

The balance of the accounts 12210-12310 must be split into a long-term (accounts 09620, 09621) and a current portion (accounts 12410, 12420). The balance of an allowance account is entirely allocated to the short term portion.

Related Accounts:Adjustments to trade receivables are booked to the following accounts in the profit and loss:

# name description62610 Write-offs62620 Allowance for bad

debts – specific62630 Allowance for bad

debts - general

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Delivery of a machine (plate) to a third party customer (domestic)Sales price net: 1.000 €VAT in %: 16terms of payment: 30 days net

Accounting transaction:

# name debit # name credit12210 A/R 1.160 4101

0Sales third parties (SBF 2)

1.000

35810

VAT collected 160

For the next reporting date the receivable is shown under the account 12410 Notes receivable – current portion, as the due date is not longer than 1 year.

Delivery (1.1.2005) of a machine (plate) to a third party customer (abroad)Sales price net: 2.400 €agreed interest (=market interest) 5% no VATterms of payment: quarterly payment of 300 € + interest over a period of 2 years


At 01.01.2005# name debit # name credit12210 A/R 2.400 4101

0Sales third parties (SBF2)

2.400

At 31.03.2005# name debit # name credit12210 A/R 30 7674

5Interest income customers

30

At 31.03.2005# name debit # name credit17010 Bank EUR 330 1221

0A/R 330

Reporting date of 31.03.05:A/R Balance debit: 2.100 € must be split into a current and long-term portion. This must be done monthly.A/R:Current portion account 12410: 1.200 €Long term portion account 09620: 900 €

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Delivery (20.12.2004) of a machine (plate) to a third party customer (domestic)Sales price net: 1.000 €VAT in %: 16terms of payment: 30 days net




1.000

35810

VAT collected 160

During work for year end reporting you receive a message that the customer is bankrupt as of the 10th of January 2005. Does the trade receivable need to be impaired for the reporting date 31.12.2004?Answer: No, as the event of bankruptcy took place in 2005.

Alternative: The customer informs you that he is bankrupt as of 28.12.2004.Does the trade receivable need to be provided for as of 31.12.2004?Answer: Yes, as the event of bankruptcy took place in 2004.

Accounting transaction as of 31.12.2004:

# name debit # name credit12280 Allowance for bad

debts – specific1.000 6262

0Allowance for bad debts - specific

1.000

Invoicing a customer in a foreign currency (USD) as of 31.1.2005Sales price net: 5.000 USDno VATterms of payment: 90 days netConversion rate as of 31.01.2005: 1 USD = 0,90 € initial value = 5.000 x 0,90 = 4.500 €




4.500

Conversion rate 31.3.2005: 1 USD = 0,8 €As of the reporting date 31.3.2005 the receivable must be measured at fair value. A fair value adjustment has to be calculated.Fair value at 31.3.2005: 5.000 x 0,8 = 4.000 €The difference (= 500 €) between the initial value (4.500 €) and the subsequent measurement on 31.3.2005 (4.000 €) is booked to the account 12250 A/R fair value adjustment.

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# name debit # name credit75210 Exchange Losses 500 1225

0A/R fair value adjustment

500

An exchange gain would be booked to the account 71110.

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3.4.12. Marketable securities3.4.12.1. Recognition /Definition

See recognition / definition under section 3.4.8. (long-term marketable securities).Difference to long-term marketable securities is that the financial assets presented here have a maturity less than twelve months.

3.4.12.2. Valuation See valuation under section 3.4.8. (long-term marketable securities).

3.4.12.3. Presentation in the Financial StatementsBalance SheetHave to be shown in line 11 of the basis reporting documents / balance sheet.

NotesSee presentation in the financial statements under section 3.4.8. (long-term marketable securities).

Accounts

# name description12610 Equity shares (short-

term)Self-explanatory

12650 Shares – fair value adjustment

Adjustment account to # 12610

12710 Other marketable securities (short-term)

Investments in securities which are short-term in nature which could include such investments as bonds, commercial paper and other securitized debt but not trade receivables and loans. It could also include hedge instruments.

12730 Other marketable securities (short-term) fair value adjustment

Adjustment account to # 12710

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Related accounts

# name description76250 Unrealized gain on


Unrealized gains on short-term marketable securities (e.g. stocks, bonds) 1. Held for Trade or 2. At Fair Value. (Note: Unrealized gains on Available for Sale marketable securities are recorded directly to equity.)

76255 Gain on sale of marketable securities (short-term)

Realized gains on any short-term marketable security (e.g. stocks, bonds) 1. Held for Trade, 2. At Fair Value or 3. Available for Sale.

76260 Unrealized loss on marketable securities (short-term)

Unrealized losses on short-term marketable securities (e.g. stocks, bonds) 1. Held for Trade or 2. At Fair Value. (Note: Unrealized losses on Available for Sale marketable securities are recorded directly to equity.)

76265 Loss on sale of marketable securities (short-term)

Realized losses on any short-term marketable security (e.g. stocks, bonds) 1. Held for Trade, 2. At Fair Value or 3. Available for Sale.

3.4.12.4. Description of typical transactionsSee valuation description of typical transactions under section 3.4.8. (long-term marketable securities).

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3.4.13. Current tax receivables3.4.13.1. Recognition /Definition

Current tax receivable is the amount of income tax recoverable with respect to the taxable profit (tax loss) for a period. If the amount already paid for current tax with respect to current and prior periods exceeds the amount due for those periods, the excess shall be recognized as an asset.

Current tax payable is the amount of income tax payable in respect of the taxable profit (tax loss) for a period. Current tax for current and prior periods shall, to the extent unpaid, be recognized as a liability.

Income tax includes all domestic and foreign taxes which are based on taxable profits. Income taxes also include taxes (such as withholding taxes) which are payable by a subsidiary on distributions to the reporting entity.

3.4.13.2. Valuation Current tax assets / liabilities / accruals for the current and prior periods shall be measured at the amount expected to be recovered from the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.

An enterprise should offset current tax assets and current tax liabilities / accruals if, and only if, the enterprise:

(a) has a legally enforceable right to offset the recognized amounts of income taxes levied by the same taxation authority; and

(b) intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously


Balance Sheet:In the balance sheet,

o current tax receivables have to be shown in line 12 of basis reporting documents / balance sheet.

o current tax payables have to be shown in line 32 of basis reporting documents / balance sheet.

o current tax accruals have to be shown in line 33 of basis reporting documents / balance sheet.

Notes:For the notes, the following disclosures have to be made:

The major components of tax expense (income) should be disclosed separately.

Components of tax expense (income) may include: i. current tax expense (income)

ii. any adjustments recognized in the period for current tax of prior periods

iii. the amount of deferred tax expense (income) relating to the origination and reversal of temporary differences

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iv. the amount of deferred tax expense (income) relating to changes in tax rates or the imposition of new taxes

v. the amount of the benefit arising from a previously unrecognized tax loss, tax credit or temporary difference of a prior period that is used to reduce current tax expense

vi. the amount of the benefit from a previously unrecognized tax loss, tax credit or temporary difference of a prior period that is used to reduce deferred tax expense

vii. deferred tax expense arising from the write-down. Or the reversal of a previous write-down, of a deferred tax asset; and

viii. the amount of tax expense (income) relating to those changes in accounting policies and fundamental errors which are included in the determination of net profit or loss for the period in accordance with the allowed alternative treatment in IAS 8 Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies

The following should also be disclosed separately:(a) the aggregate current and deferred tax relating to items that are

charged or credited to equity(b) tax expense (income) relating to extraordinary items recognized

during the period(c) an explanation of the relationship between tax expense (income) and

book accounting profit in either or both of the following forms: a numerical reconciliation between tax expense (income) and

the product of accounting profit multiplied by the applicable tax rate(s), disclosing also the basis on which the applicable tax rate(s) is (are) computed; or

a numerical reconciliation between the average effective tax rate and the applicable tax rate, disclosing also the basis on which the applicable tax rate is computed

(d) an explanation of changes in the applicable tax rate(s) compared to the previous accounting period

(e) the amount (and expiry date, if any) of deductible temporary differences, unused tax losses, and unused tax credits for which no deferred tax asset is recognized in the balance sheet

(f) the aggregate amount of temporary differences associated with investments in subsidiaries, branches and associates and interests in joint ventures, for which deferred tax liabilities have not been recognized

(g) in respect of each type of temporary difference, and in respect of each type of unused tax losses and unused tax credits: the amount of the deferred tax assets and liabilities

recognized in the balance sheet for each period presented the amount of the deferred tax income or expense recognized

in the income statement, if this is not apparent from the changes in the amounts recognized in the balance sheet

(h) with respect to discontinued operations, the tax expense relating to: the gain or loss on discontinuance; and

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the profit or loss from the ordinary activities of the discontinued operation for the period, together with the corresponding amounts for each prior period presented; and

(i) the amount of income tax consequences of dividends to shareholders of the enterprise that were proposed or declared before the financial statements were authorized for issue, but are not recognized as a liability in the financial statements.

An enterprise should disclose the amount of a deferred tax asset and the nature of the evidence supporting its recognition when:

(a) the utilization of the deferred tax asset is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences; and

(b) the enterprise has suffered a loss in either the current or preceding period in the tax jurisdiction to which the deferred tax asset relates.

In some jurisdictions, income taxes may be refundable or payable if part or all of the net profit or retained earnings is paid out as a dividend to shareholders of the entity. In this circumstance, an enterprise should disclose the nature of the potential income tax consequences that would result from the payment of dividends to its shareholders. In addition, the enterprise should disclose the amounts of the potential income tax consequences practicably determinable and whether there are any potential income tax consequences not practicably determinable.

AccountsThe following accounts should be booked for current tax receivables:

# name description12910 Corporate income tax

receivable current year

Self-explanatory

12920 Corporate income tax receivable prior years

Self-explanatory

12930 Other income-related tax receivable current year

Self-explanatory

12940 Other income-related tax receivable prior years

Self-explanatory

Related accounts

# name description34510 provision for corporate

income taxself-explanatory

34520 provision for other income-related tax

e.g. for German “Gewerbesteuer“ or similar taxes on income/profit of a company except corporate income tax

34530 provision for corporate income tax prior years

see account 34510, referring prior years

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# name description34540 provision for other

income-related tax prior years

see account 34520, referring prior years

34810 Corporate income tax payable current year

Self-explanatory

34820 Corporate income tax payable prior year

Self-explanatory

34830 Other income related tax payable current years

Self-explanatory

34840 Other income related tax payable prior years

Self-explanatory

79310 Corporate income tax paid

Only that part of income tax which was paid in cash

79315 Corporate income tax accrued

Only that part of income tax which was accrued

79320 other income-related tax paid

Only that part of income-related tax which was paid in cash

79325 other income-related tax paid accrued

Only that part of income-related tax which was accrued

3.4.13.4. WorksheetsSee attachment 8a and 8b as described under section 3.4.XX


Example 1 (how to book the monthly/quarterly prepayments)

Quarterly prepayments are 3.000 LC, to be paid at the beginning of Jan/April/July/Oct.

End of Jan - March/Apr - June/July - Sept/Oct - Dec# name debit # name credit79315 Corporate income tax

accrued1.000 3451

0Provision for corporate income tax

1.000

Beginning of April/July/Oct/Jan# name debit # name credit34510 Provision for corporate

income tax3.000 1701

0Current bank account EUR

3.000

79310 Corporate income tax paid

3.000 79315

Corporate income tax accrued

3.000

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Example 2 (current tax liability because of tax audit for prior years)

Tax liability is 1.500 LC, and has to be paid within one month after tax audit.

# name debit # name credit79310 Corporate income tax

paid1.500 3482

0Corporate income tax payable prior year

1.500

At payment date# name debit # name credit34820 Corporate income tax

payable prior year1.500 1701


1.500

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3.4.14. Other current assets3.4.14.1. Recognition / Definition

The comments on recognition and definition of trade receivables under 3.4.11.1 are also effective for other current assets taking into account the following modifications:

Other contractual receivables (e.g. prepayment for travel expenses, bonus from suppliers, contractual claims for compensation, short term loans to employees) must be accounted for when the claim of payments exists (e.g. a bonus from a supplier must be accounted for if a specified agreement is reached or exceeded).

Other non-contractual receivables (e.g. legal compensation, social expenses) must be included in the financial statements according to the regulations of the framework (F.83). This receivable shall be recognized if it is probable that a future economic benefit associated with the item will flow to the entity.

3.4.14.2. Valuation

The comments on valuation of trade receivables under 3.4.11.2 also apply to other current assets taking into account following exceptions:

Initial measurement of other receivables: Other contractual receivables are measured at fair value independent of the classification of the financial asset (IAS 39.43). Other non-contractual receivables are measured with the probable future economic benefit (F.83, F.99).

Subsequent measurement of other receivables:Other contractual receivables classified as loans and receivables shall be measured at amortized costs (IAS 39.46).

Important: It is not allowed to book an allowance for receivables against companies in the COMPANY Group.


Balance Sheet:For presentation in the balance sheet, other current assets must be split like trade receivables into a current portion (maturity within 1 year) and a non-current portion (maturity longer than 1 year). The other assets with a maturity within 1 year are shown in the balance sheet under the position other current assets. The receivables with a maturity longer than 1 year are presented in the balance sheet under the position other non-current assets.

Note that receivables against affiliates are always classified as current assets.

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Notes:The regulations for the notes of trade receivables also apply here (see section 3.4.11.)

Accounts:The following accounts in the COMPANY Group Chart of Accounts concern other assets:

09630 Other non-currents assets13110 A/R affil. All receivables against affiliates are

shown under this account13210 Accounts receivable

associated companiesThis account is only for use by WAG

13280 A/R assoc. – fair value adjustment

This account is only for use by WAG

13315 Interest receivable Unsettled interest is booked here13320 Travel advances Granting of an advanced payment to

employees is booked to this account13330 Deposits under 1 year e.g. deposits for lease contracts13340 A/P debit balances Self-explanatory13350 Loans under 1 year Self-explanatory13360 Suspense account Account for booking transactions which

are unclear and not identified. Balance at the end of the period should be zero.

13390 Other assets Sundry account for other transactions14110 VAT receivables current

yearNet current year VAT amount, if receivable amount

14190 VAT A/R prior years self-explanatory14210 Prepaid taxes e.g. vehicle tax which is now paid for a

future period14220 Prepaid insurance e.g. business insurance which is now

paid for a future period14230 Prepaid interest e.g. interests to a bank which is now

paid for a future period14240 Prepaid rent e.g. rent for premises for January paid

in December14250 Prepaid

exhibition/advertising costse.g. stand costs for an exhibition which takes place in the following business year.

14260 Prepaid tooling costs same circumstances14290 Other prepayments Other prepayments than described in

accounts 14210 – 14260.

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Interest receivableMoney deposit at the bank on 1.12.2005Amount 100.000 €Maturity: 31.01.2006Interest rate: 6% to be paid at the maturity of the deposit.

Booking of interest receivable on 31.12.2005:Interest claim: 100.000 x 6% / 12 = 500 €

Accounting record:

# name debit # name credit13315 Int. receivable 500 7671

5Accrued interest inc. 500

VAT bookingBooking of a supplier invoice (telephone) Net amount 5.000 €VAT 16% = 800 €Total Amount = 5.800 €

Accounting record:

# name debit # name credit67110 Telephone 5.000 3301

0A/P 5.800

14110 VAT paid 800

Prepaid expensesBooking of a supplier invoice (dated from 1.7.2005) for renting a building for 1 year (from July 2005 – June 2006)Net amount 24.000 €VAT 16% = 3.840 €Total Amount = 27.840 €

Accounting record as of 01.07.05:

# name debit # name credit64110 Rent of premises 2.000 3301

0A/P 27.840

14110 VAT paid 3.84014240 Prepaid rent 22.000

The next 11 months, beginning with August 2005, the following booking must be carried out:

# name debit # name credit64110 Rent of premises 2.000 1422 Prepaid rent 2.000

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3.4.15. Cash and Cash Equivalents3.4.15.1. Recognition /Definition

Cash:Cash on hand and demand deposit.

Cash equivalents:Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

For Cash flow purposes (see explanation under section 5.5.) only cash and cash equivalents with a maturity of three months or less are considered as cash fund.

Cash and cash equivalents are classified as financial instruments specifically as financial assets. They belong to the classification as “at fair value through profit and loss” because they are acquired or incurred principally for the purpose selling or repurchasing in the near term (held for trading).

These financial assets are initially measured at fair value.

3.4.15.2. ValuationAfter initial measurement cash and cash equivalents are measured at fair value like before. Gains and losses on these financial assets shall be recognised in the income statement. These can be gains or losses on market value or on currency.


Balance SheetCash and cash equivalents must be shown in line 14 of the basic reporting documents / balance sheet.

Notes

For each class of financial asset, an entity shall disclose:(a) information about the extent and nature of the financial instruments,

including significant terms and conditions that may affect the amount, timing and certainty of future cash flows, and

(b) the accounting policies and methods adopted, including the criteria for recognition and the basis of measurement applied.

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Accounts

# name description16XXX Petty cash fund Self-explanatory 17XXX Bank current

accountsSelf-explanatory, including BMG accounts

18XXX Bank term deposit Self-explanatory18910 Automatic payments Self-explanatory18920 Checks deposited Self-explanatory18930 Checks outstanding Self-explanatory18940 Bank suspense

accountInterims account, should be zero at the end of a period.

Related accounts

# name description76720 Interest income –

current bank accountSelf-explanatory

77710 Bank interest expenses

Self-explanatory


The most common currencies (EUR and USD) in addition to the local currency should be booked on separate accounts and mapped to the corresponding accounts of the GFC Chart of Accounts.

Any cash and cash equivalent accounts should be measured at fair value. There is no need for adjustments for the amounts in local currency but amounts in foreign currencies shall be measured with the exchange rate as of reporting date. The adjustment has to be done for both directions – increase or decrease of the amount. These changes have to be considered in the income statement.

Some affiliates have petty cash funds in foreign currencies in a very small amount. If it is not necessary under local GAAP to adjust these amounts at reporting date, IFRS adjustments do not need to be booked due to materiality.

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3.4.16. Equity attributable to equity holders of the parent3.4.16.1. Share capital3.4.16.1.1. Recognition / Definition

Share capital is the proportion of a company's capital derived from the issue of ordinary shares and preferred shares. Share capital can increase over the course of time by a capital increase from the company’s own resources or the issuance of shares. An affiliate’s current share capital is confirmed in the commercial register. Because share capital is originally only used in context with corporations, the following “synonyms” may also be shown under share capital: Share capital Subscribed capital Issued capital Common stock Capital stock Paid-in capital as well as additional paid-in capital

3.4.16.1.2. ValuationShare capital has to be valued at historical cost. On the local balance sheet no valuation has to be done. Share capital stays at the original amount. On a Group consolidation level, share capital has to be converted with the exchange rate at the date of foundation or acquisition.

3.4.16.1.3. Presentation in the financial statementIn the balance sheet, share capital is stated in a separate line. Any other parts of equity are shown in other lines.

In the notes, the following basic disclosures have to be given: The number or amount of shares authorized, issued, and outstanding. Capital not yet paid in. Par value per share. Movements in share capital accounts during the year. Rights, preferences, and restrictions with respect to the distribution of

dividends and to the repayment of capital. Cumulative preference dividends in arrears. Reacquired shares: Shares that are reacquired by a company are

referred to as treasury stock. Shares reserved for future issuance under options and sales contracts,

including the terms and amounts.

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The following account has to be booked

# name description20210 Share capital Share capital is the proportion of a

company's capital which derives from the issue of ordinary shares and preferred shares. Because share capital is originally only used in connection with corporations the following “synonyms” have also to be shown under share capital: issued capital, subscribed capital, common stock, capital stock or paid-in capital.

Related accounts are all accounts within equity (# 20210 - # 29720).

3.4.16.1.4. WorksheetsSee Statement of Changes in Equity (attachment 4). Instructions on how to complete it are given under point 6.

3.4.16.1.5. Description of typical transactions

Example 1:Foundation of an affiliate, share capital is 100 LC

# name debit # name credit17010 Bank account 100 2021

0Share capital 100

Example 2:Capital increase from the company’s own resources100 LC out of retained earnings into share capital

# name debit # name credit28110 Retained earnings

prior years100 2021

0Share capital 100

Example 3:Capital increase from issuance of shares100 shares at 1 LC are issued at 16 LC


0Share capital 100

24010

Capital reserve 1.500

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3.4.16.2. Capital reserve3.4.16.2.1. Recognition / Definition

A capital reserve is the amount above the nominal value when issuing shares or any additional payments by the owners of a company with or without the grant of an advantage in connection with their shares.

3.4.16.2.2. ValuationCapital reserves must be valued at historical cost. On the local balance sheet, no valuation has to be done. Capital reserves remain at the original amount. On a Group consolidation level, capital reserves must be converted with the exchange rate at the date of foundation or acquisition.

3.4.16.2.3. Presentation in the financial statementIn the balance sheet, capital reserves are shown as a part of “other reserves.” A breakdown of other reserves is made available in the Statement of Changes in Equity (see point 6).

In the notes, the following basic disclosures must be given:The standard requires that movements during the period (year) in these reserves be disclosed, along with the nature and purpose of each reserve presented within owners’ equity. This shall be part of the Statement of Changes in Equity.

The following accounts have to be booked

# name description24010 Capital reserve Capital reserve is the amount above the

nominal value when issuing shares or any additional payments by the owners of a company with or without the grant of an advantage in connection with their shares.

24020 Goodwill offset Only to be booked by GFC for equity consolidation purposes.


3.4.16.2.4. WorksheetsSee Statement of Changes in Equity (attachment 4). Instructions on how to complete it are given under point 6.


Example 1:Capital increase from issuance of shares100 shares at 1 LC are issued at 16 LC


0Share capital 100

2401 Capital reserve 1.500

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3.4.16.3. Revenue reserves3.4.16.3.1. Recognition / Definition

Revenue reserves may include only those amounts which are or were part of the net profit of the current year / retained earnings in prior years. This also includes reserves which have to be formed according to legal or statutory requirements.

3.4.16.3.2. ValuationRevenue reserves have to be valued at historical cost. On the local balance sheet no valuation has to be done. Revenue reserves remains at the original amount. On a Group consolidation level, revenue reserves have to be converted with the exchange rate at the date of foundation or acquisition.

3.4.16.3.3. Presentation in the financial statementIn the balance sheet, revenue reserves are shown as a part of “other reserves”. A breakdown of other reserves is made available in the Statement of Changes in Equity (see point 6).

In the notes, the following basic disclosures have to be given:The standard requires that movements during the period (year) in these reserves be disclosed, along with the nature and purpose of each reserve presented within owners’ equity. This shall be part of the Statement of Changes in Equity.

The following accounts have to be booked:

# name description26110 Legal reserve A legal reserve is created based on the

requirements of the law under which the company is incorporated.

26310 Statutory reserve A statutory reserve is created based on the statute under which the company is incorporated.

26410 Other revenue reserves

Other revenue reserves that are specified as legal and/or statutory reserves.

26420 Adjustment on untaxed special reserve

Only for GFC purposes.


3.4.16.3.4. WorksheetsSee Statement of Changes in Equity (attachment 4). Instructions on how to fill out are given under point 6.

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Example 1:Additions to revenue reserves because of legal requirement (e.g.10% of net profit) 1.600 LC

# name debit # name credit28110/29110

Retained earnings prior year / net profit for the year

1.600 26110

Legal reserve 1.600

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3.4.16.4. Revaluation surplus3.4.16.4.1. Recognition / Definition

A revaluation surplus is not to be shown in the Statement of Changes in Equity at all. COMPANY policy is that property, plant and equipment is NOT to be revaluated according to IAS 16. Therefore, there is no relevance for the whole COMPANY Group.

3.4.16.4.2. ValuationNot applicable, see 3.4.16.4.1.

3.4.16.4.3. Presentation in the financial statementNot applicable, see 3.4.16.4.1.

3.4.16.4.4. WorksheetsNot applicable, see 3.4.16.4.1.

3.4.16.4.5. Description of typical transactionsNot applicable, see 3.4.16.4.1.

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3.4.16.5. Fair value reserve3.4.16.5.1. Recognition / Definition

The fair value reserve includes gains or losses on hedging or any other financial instruments on a net of tax basis which shall be recognized directly in equity according to IAS 39 (e.g. gain or loss on a cash flow hedge).

3.4.16.5.2. ValuationSee valuation of the corresponding financial instruments.

3.4.16.5.3. Presentation in the financial statementIn the balance sheet, fair value reserves are shown as a part of “other reserves.” A breakdown of other reserves is made available in the Statement of Changes in Equity (see point 6)


The following account has to be booked:

# name description26860 Fair value reserve Fair value reserve includes gains or losses

on hedging or any other financial instruments on a net of tax basis which shall be recognized directly in equity according to IAS 39.



3.4.16.5.5. Description of typical transactionsSee example under section 3.4.9.

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3.4.16.6. Exchange differences3.4.16.6.1. Recognition / Definition

This part of equity is only for GFC purposes. It includes the exchange differences resulting from the consolidation which are caused by the following aspects:

Difference between the average exchange rate for the income statement and the balance-sheet-date exchange rate for the assets and liabilities

Difference between the historical exchange rate at first-time-consolidation date and the balance-sheet-date exchange rate for equity.

Changes in exchange rates for currency hedges or similar business transactions are not to be shown here.

3.4.16.6.2. ValuationExchange differences cannot be valuated because they vary from reporting period to reporting period depending on the exchange rates.

3.4.16.6.3. Presentation in the financial statementIn the balance sheet, exchange differences are shown as a part of “other reserves.” A breakdown of exchange differences is made available in the Statement of Changes in Equity (see point 6)



# name description26960 Foreign exchange

differences - net profit for the year

Includes difference between average exchange rate for the income statement and the balance-sheet-date exchange rate for the assets and liabilities

26970 Foreign exchange differences - rest of equity

Includes difference between historical exchange rate at first-time-consolidation date and balance-sheet-date exchange rate for the equity

26980 Foreign exchange differences - others

to be identified



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3.4.16.6.5. Description of typical transactionsAccounts are booked automatically within the consolidation process. No description of typical transactions.

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3.4.16.7. Other neutral changes3.4.16.7.1. Recognition / Definition

Other neutral changes include any other business transactions which shall be recognized directly in equity except fair value reserve and exchange differences. To be identified. Can only be booked under rare circumstances (e.g. if investment property is valued at fair value and should be shown separately from fair value reserve).

3.4.16.7.2. ValuationDepends on the related business transaction.

3.4.16.7.3. Presentation in the financial statementIn the balance sheet, other neutral changes are shown as a part of “other reserves.” A breakdown of other reserves is made available in the Statement of Changes in Equity (see point 6).



# name description27110 Other neutral changes Other neutral changes include any other

business transactions which shall be recognized directly in equity except fair value reserve and exchange differences. To be identified, please inform GFC if you book in this account.


3.4.16.7.4. WorksheetsSee Statement of changes in equity (attachment 4). Instructions on how to fill out are given under point 6.

3.4.16.7.5. Description of typical transactionsWill be filled out in case there are any in the COMPANY Group.

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3.4.16.8. Retained earnings3.4.16.8.1. Recognition / Definition

Retained earnings include the profit / loss for the current year and the prior years. Current and prior years have to be shown separately.

3.4.16.8.2. ValuationAt nominal value.

3.4.16.8.3. Presentation in the financial statementIn the balance sheet, retained earnings are shown in a separate line.



# name description28110 Retained earnings

prior yearsNet profit prior years

28220 Retained earnings - dividends

Special account in case of paying a dividend

28230 Retained earnings - equity consolidation

Only for GFC purposes

28240 Retained earnings - Group consolidation

Only for GFC purposes

29110 Net profit/loss for the year

Self-explanatory




Example 1:Dividend to the parent company which was declared but not yet paid out: 1.000 LC

# name debit # name credit28200 Retained earnings

dividends1.000 3531

0Liabilities to associated companies

1.000

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3.4.16.9. Treasury shares 3.4.16.9.1. Recognition / Definition

If an entity reacquires its own equity instruments, those instruments (“treasury shares” sometimes also called “own shares”) shall be deducted from equity. No gain or loss shall be recognized in profit or loss on the purchase, sale, issue or cancellation of an entity’s own equity instruments. Such treasury shares may be acquired and held by the entity or by other members of the consolidated Group. Consideration paid or received shall be recognized directly in equity.

At the moment, treasury shares are only relevant for WAG.

3.4.16.9.2. ValuationTreasury shares shall be measured at purchase cost. For treasury shares the cost method is relevant. As a consequence of this method the entire purchase costs are shown in total as a reduction of equity.

3.4.16.9.3. Presentation in the financial statementIn the balance sheet, treasury shares are shown separately in line 19 of the basic reporting documents.

In the notes, the following basic disclosures have to be given:Only relevant for GFC.


# name description27610 Treasury shares For GFC use only


3.4.16.9.4. WorksheetsSee Statement of Changes in Equity (attachment 4), instructions how to fill out are given under point 6.


Purchase of treasury shares:

# name debit # name credit27610 Treasury shares 1.000 1701

0Bank account 1.000

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3.4.17. Minority interest3.4.17.1. Recognition /Definition

A minority interest is that portion of the profit or loss and net assets of a subsidiary attributable to equity interests that are not owned, directly or indirectly through subsidiaries, by the parent. At the moment this is not relevant for the COMPANY Group.

3.4.17.2. Valuation Valuation at nominal value.

3.4.17.3. Presentation in the Financial StatementsBalance SheetShall be shown in a separate line of the basic reporting documents (line 22) within equity.

NotesAt the moment not relevant for the COMPANY Group.

Accounts

# name description29810 Minority interest - net

profit for the yearFor GFC use only

29820 Minority interest - rest of equity

For GFC use only

Related accounts are all accounts within equity (# 20210 - # 29720)

3.4.17.4. WorksheetsSee Statement of changes in equity (attachment 4), instructions how to fill out are given under point 6.

3.4.17.5. Description of typical transactionsNot relevant on an affiliate level.

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3.4.18. Long-term borrowings3.4.18.1. Recognition /Definition

Long-term borrowings are classified as financial instruments, specifically financial liabilities. For initial recognition, an entity shall measure a financial liability at its fair value plus transaction costs (e.g. long-term borrowing from a bank in the amount of 10.000 LC, 5% deduction for immediate payment (Disagio), 500 LC transaction fee). Both payout deduction and transaction fee are to be considered as transaction costs.

3.4.18.2. Valuation After initial recognition, an entity shall measure all financial liabilities at amortized cost. Exceptions are liabilities which include a derivative. The explanation of this exception can be found under section 3.4.8.

3.4.18.3. Presentation in the Financial StatementsBalance SheetFor the presentation in the balance sheet long-term borrowings must be shown in two sections:

(a) Line 24 of basis reporting documents / balance sheet for the part with a maturity over 12 months (non-current liabilities)

(b) Line 30 of basis reporting documents / balance sheet for the part with a maturity under 12 months (current liabilities)

NotesFor each class of financial liability, an entity shall disclose:

(a) information about the extent and nature of the financial instruments, including significant terms and conditions that may affect the amount, timing and certainty of future cash flows; and


Accounts

# name description30110 Long-term liabilities to

banks over 1 year up to 5 years

includes long-term credits and loans from a bank (with maturity over 12 months), period 1 year up to 5 years

30115 Long-term liabilities to banks over 5 years

includes long-term credits and loans from a bank (with maturity over 12 months), period over 5 years

30120 Long-term liabilities finance lease over 1 year up to 5 years

includes long-term liabilities out of finance lease contracts (with maturity over 12 months), period 1 year up to 5 years

30125 Long-term liabilities finance lease over 5 years

includes long-term liabilities out of finance lease contracts (with maturity over 12 months), period over 5 years

30130 Other long-term borrowings over 1 year up to 5 years

includes other long-term liabilities e.g. loans from third parties (with maturity over 12 months), period 1 year up to 5 years

30135 Other long-term borrowings over 1 year up to 5 years

includes other long-term liabilities e.g. loans from third parties (with maturity over 12 months), period over 5 years

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Related accounts


banks under 1 year Current portion (under 12 months) of # 30110 and # 30115


Current portion (under 12 months) of # 30120 and # 30125

33630 Other long-term borrowings under 1 year


77715 Interest expense on loans

Interest paid loans from bank or other source.

77745 Interest finance lease Interest paid on finance lease

3.4.18.4. Description of typical transactionsExample 1Long-term liability to a bank in the amount of 100.000 LC (conditions as described below), duration 38 months. See the following repayment plan:

amount: 100.000,00interest p.a.: 8%monthly payment: 3.000,00

carryingdate payment interest repayment amount

100.000,0030.07.2004 3.000,00 666,67 2.333,33 97.666,6730.08.2004 3.000,00 651,11 2.348,89 95.317,7830.09.2004 3.000,00 635,45 2.364,55 92.953,2330.10.2004 3.000,00 619,69 2.380,31 90.572,9230.11.2004 3.000,00 603,82 2.396,18 88.176,7430.12.2004 3.000,00 587,84 2.412,16 85.764,58

18.000,00 3.764,58 14.235,42

30.01.2005 3.000,00 571,76 2.428,24 83.336,3528.02.2005 3.000,00 555,58 2.444,42 80.891,9230.03.2005 3.000,00 539,28 2.460,72 78.431,2030.04.2005 3.000,00 522,87 2.477,13 75.954,0830.05.2005 3.000,00 506,36 2.493,64 73.460,4430.06.2005 3.000,00 489,74 2.510,26 70.950,1730.07.2005 3.000,00 473,00 2.527,00 68.423,1730.08.2005 3.000,00 456,15 2.543,85 65.879,3330.09.2005 3.000,00 439,20 2.560,80 63.318,5230.10.2005 3.000,00 422,12 2.577,88 60.740,6530.11.2005 3.000,00 404,94 2.595,06 58.145,5830.12.2005 3.000,00 387,64 2.612,36 55.533,22

36.000,00 5.768,64 30.231,36

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30.01.2006 3.000,00 370,22 2.629,78 52.903,4428.02.2006 3.000,00 352,69 2.647,31 50.256,1330.03.2006 3.000,00 335,04 2.664,96 47.591,1730.04.2006 3.000,00 317,27 2.682,73 44.908,4530.05.2006 3.000,00 299,39 2.700,61 42.207,8430.06.2006 3.000,00 281,39 2.718,61 39.489,2230.07.2006 3.000,00 263,26 2.736,74 36.752,4930.08.2006 3.000,00 245,02 2.754,98 33.997,5030.09.2006 3.000,00 226,65 2.773,35 31.224,1530.10.2006 3.000,00 208,16 2.791,84 28.432,3130.11.2006 3.000,00 189,55 2.810,45 25.621,8630.12.2006 3.000,00 170,81 2.829,19 22.792,67

36.000,00 3.259,45 32.740,55

30.01.2007 3.000,00 151,95 2.848,05 19.944,6328.02.2007 3.000,00 132,96 2.867,04 17.077,5930.03.2007 3.000,00 113,85 2.886,15 14.191,4430.04.2007 3.000,00 94,61 2.905,39 11.286,0530.05.2007 3.000,00 75,24 2.924,76 8.361,2930.06.2007 3.000,00 55,74 2.944,26 5.417,0330.07.2007 3.000,00 36,11 2.963,89 2.453,1530.08.2007 2.469,50 16,35 2.453,15 0,00

23.469,50 676,83 22.792,67

GESAMT 113.469,50 13.469,50 100.000,00

Book entry at 30.06.2004

# name debit # name credit17010 Current bank

account100.000,00 3361

0Long-term liabilities to banks under 1 year

29.049,83

30110

Long-term liabilities to banks over 1 year up to 5 years

70.950,17

Book entry at 30.07.2004# name debit # name credit33610 Long-term

liabilities to banks under 1 year

2.333,33 17010

Current bank account

3.000,00

77715 Interest expense on loan

666,67

30110 Long-term liabilities to banks over 1 year up to 5 years

2.527,00 33610

Long-term liabilities to banks under 1 year

2.527,00

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Book entry at 30.08.2004


liabilities to banks under 1 year

2.348,89 17010

Current bank account

3.000,00

77715 Interest expense on loan

651,11

30110 Long-term liabilities to banks over 1 year up to 5 years

2.543,85 33610

Long-term liabilities to banks under 1 year

2.543,85

… to be continued.

Example 2Finance lease contracts and relating book entries are described in detail under the section Finance Lease / description of typical transactions (3.4.2)

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3.4.19. Deferred taxes (see 3.4.7.)3.4.19.1. Recognition /Definition

See 3.4.7. (Deferred taxes)

3.4.19.2. Valuation (includes COMPANY policy)See 3.4.7. (Deferred taxes)

3.4.19.3. Presentation in the Financial StatementsBalance SheetSee 3.4.7. (Deferred taxes)

NotesSee 3.4.7. (Deferred taxes)

AccountsSee 3.4.7. (Deferred taxes)

Related accountsSee 3.4.7. (Deferred taxes)

3.4.19.4. WorksheetsSee 3.4.7. (Deferred taxes)

3.4.19.5. Description of typical transactionsSee 3.4.7. (Deferred taxes)

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3.4.20. Long-term provisions3.4.20.1. Recognition / Definition of provisions in general

Definitions:A provision is a liability of uncertain timing or amount. It shall be recognized when: an entity has a present obligation (legal or constructive) as a result of a

past event, it is probable that an outflow of resources embodying economic

benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation,

If all of these conditions are not met, no provision shall be recognized.

A legal obligation is an obligation that arises from a contract (through its explicit or implicit terms) legislation; or other operation of law.

A constructive obligation is an obligation that derives from an entity’s actions where

by an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities; and

as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities.

Difference between provisions and other liabilities:Provisions can be distinguished from other liabilities such as trade payables and accruals because there is uncertainty about timing or amount of the future expenditure required in settlement. By contrasta) trade payables are liabilities to pay for goods or services that have been

received or supplied and have been invoiced or formally agreed with the supplier;

b) accruals are liabilities to pay for goods or services that have been received or supplied but not been paid, invoiced or formally agreed with the supplier, including amounts due to the employees. Although it is sometimes necessary to estimate the amount or timing of accruals, the uncertainty is generally much less than for provisions.

Differentiation between long-term and short-term provisions:A provision should be shown under long-term provisions if the maturity is more than twelve months away. A breakdown of long-term provisions into a current and a long-term portion has to be done.

COMPANY policy: Accruals shall be shown under other liabilities according to IAS,

although they have an aspect of uncertainty like provisions. Additional worksheets as described under 3.4.20.4. have to be filled

out.

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3.4.20.2. Valuation

Best estimate: The amount recognized as a provision shall be the best estimate of the expenditure required to settle the present obligation at the balance sheet date.

Risks and uncertainties: The risks and uncertainties that inevitably surround many events and circumstances shall be taken into account in reaching the best estimate of a provision.

Present value : where the effect of the time value of money is material, the amount of a provision shall be the present value of the expenditures expected to be required to settle the obligation. Provisions should be discounted where the effect is material. The discount rate shall be a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

Exception employee benefits : provisions that fall under IAS 19 are valuated by an actuarial expert’s opinion for the whole COMPANY Group. If you have provisions for pensions please contact GFC early enough that this valuation can be organized on a Group level.

3.4.20.3. Presentation in the financial statement

In the balance sheet, provisions can be found in two lines. According to IFRS, there must be a differentiation between long-term and short-term provisions. Long-term provisions are a part of non-current liabilities, and short-term provisions have to be shown under current liabilities (see 3.4.24.)

In the notes, the following basic disclosures must be given:For each class of provision, an enterprise should disclose:a) the carrying amount at the beginning and end of the period,b) additional provisions made in the period, including increases to existing

provisions,c) amounts used (i.e. incurred and charged against the provision) during the

period,d) unused amounts reversed during the period; ande) the increase during the period in the discounted amount arising from the

passage of time and the effect of any change in the discount rate.Comparative information is not required.

An enterprise should disclose the following for each class of provision:a) brief description of the nature of the obligation and the expected timing of

any resulting outflows of economic benefits,b) an indication of the uncertainties about the amount or timing of those

outflows. Where necessary to provide adequate information, an enterprise should disclose the major assumptions made concerning future events; and

c) the amount of any expected reimbursement, stating the amount of any asset that has been recognized for that expected reimbursement.

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In the GFC Chart of accounts, the following accounts are included:

# name description30810 Provision for pension provisions that fall under IAS 19 (employee

benefits) should be booked here. These provisions include defined benefit and/or contribution plans, the German “Pensions-zusagen” and other similar provisions

30820 Provision for litigation if an affiliate is involved in a lawsuit or litigation and this litigation protracts over twelve months the related probable expenses have to be booked here

30830 Provision for warranties (long-term)

Warranties that have a maturity over twelve months

30840 Other long-term provisions

Other long-term provisions – to be identified. Please contact GFC if you think it is necessary to book on this account

Related accounts:Related accounts are the accounts under:

3.4.24. (short-term provisions) # 34510 - # 34690, 3.4.26. (other liabilities / accruals) # 35610 - # 35690, the corresponding expense accounts in the income statement (e.g.

# 58120 warranty expense).

3.4.20.4. WorksheetsFor GFC purposes, the attached worksheet has to be filled out for quarterly and yearly reporting.

The attachment has to be filled out the following way: as of January 1: the amount of the provision in the opening balance at

the beginning of the year in local currency translation difference: only for GFC purposes, is not to be filled out by

the affiliate use of provision: amounts used (i.e. incurred and charged against the

provision) during the period (see disclosures under 3.4.20.3.) reversal: unused amounts reversed during the period (see disclosures

under 3.4.20.3.) as of march 31/ June 30/ September 30/ December 31: the amount of

the provision at the end of the reporting period in local currency

Please be aware of the fact that the amount at the end of reporting period has to the same as shown in the trial balance under the corresponding account. Check this for the reporting package.

Please also be aware of the fact that the balance at year end has to be brought forward so that the amount at year end 2004 corresponds to the amount as of January 1, 2005.

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Example 1 Long-term warranties; LC 1.000 for every year, obligation for warranties: 2 yrs.interest rate: 5% p.a., but effect of discounting is not material.probable entry: two years after book entry

book entry58960 Warranty costs 1.000,00 3083

0Provision for warranties (long-term)

1.000,00

In case of use of provision (when the invoice comes)30830 Provision for

warranties (long-term)

700,00 17010

Current bank account EUR

700,00

Rest for reversal30830 Provision for

warranties (long-term)

300,00 58960

Warranty costs 300,00

Warranties which are probable within one year should be shown under # 34610 (provision for warranties short term).

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3.4.21. Trade Payables3.4.21.1. Recognition / Definition

Definition of a liability:A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. A financial liability is a contractual obligation:

to deliver cash or financial asset to another entity or; to exchange financial assets or financial liabilities with another entity

under conditions that are potentially unfavourable to the entity.

Trade payables as financial instruments must be put in the categories of IAS 39.9. There are the following categories:

At Fair value through Profit and Loss (Held for trading) Held-to-maturity Investments Loans and Receivables Available-for-Sale Financial Assets

COMPANY policy:In the COMPANY Group, all payables are classified in the Group as financial liabilities to be measured at cost.

An entity shall recognize a financial liability on its balance sheet when the entity becomes a party to the contract and has the legal obligation to pay cash. Liabilities to be incurred as a result of a firm commitment to purchase goods or services are generally not recognized until at least one of the parties has performed under the agreement. For example, an entity that places an order does not recognize a liability at the time of commitment but delays recognition until the ordered goods or services have been shipped, delivered or rendered.

Derecognition of a liability:A financial liability is derecognized by:

discharging the liability (or part of it) by paying the creditor, normally with cash, other financial assets, goods or services; or

legal releasing from primary responsibility for the liability either by process of law or the creditor.

3.4.21.2. Valuation

Initial measurement of trade payables: When a trade payable is recognized, it is initially measured at fair value (IAS 39.43). The fair value of a trade payable on initial recognition is normally the transaction price.

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Foreign currency liabilities:A foreign currency transaction shall be recorded on initial recognition in the functional currency by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of transaction.

Discounting:The fair value of a long-term payable that carries no interest (or an interest below the market interest) is estimated as the present value of all future cash payments discounted using the prevailing market rate of interest for a similar instrument with similar credit rating. Example: see below under subsequent measurement.

Subsequent measurement of trade payables:After initial recognition, an entity shall measure all financial liabilities at amortized cost using the effective interest method. A gain or loss for a financial liability carried at amortized cost is recognized in profit and loss.

For subsequent measurement, foreign currency items shall be translated using the closing rate. Any foreign exchange gains and losses on monetary liabilities are recognized in profit and loss.


Balance Sheet:A liability shall be classified as current when it satisfies any of the following criteria:

it is expected to be settled in the entity’s normal operating cycle; or it is due to be settled within twelve months after the balance sheet

date.Trade payables are part of working capital used in the entity’s normal operating cycle. Such operating items are classified as current liabilities even if they are due to be settled more than twelve months after the balance sheet date.

The trade payables are shown in the balance sheet under the position trade payables. Liabilities to affiliate entities are shown under the position other liabilities. For more details see chapter 3.4.26.

Notes:The requested information for trade receivables is also effective for trade payables. In addition, the following information for trade payables must be presented:

Further sub classifications of the line items presented, classified in a manner appropriate to the entity’s operations.

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Payable aging report: For each liability line item that combines amounts expected to be settled (a) no more than twelve months after the balance sheet date and (b) more than twelve months after balance sheet date, an entity shall

disclose the amount expected to be settled after more than twelve months.

For financial liabilities an entity shall disclose the fair value of that class of liabilities to compare it with the corresponding carrying amount in the balance sheet.

Accounts:The following accounts from the COMPANY Group Chart of Accounts are included in trade payables:

# name description33010 A/P domestic Self-explanatory33020 A/P fair value

adjustmentSelf-explanatory

Only for cases where Baan has been implemented these accounts are probably implemented on a local level and should be mapped to # 33010:

# name description33011 A/P domestic advance Baan-specific accounts on a local level33012 A/P EU Baan-specific accounts on a local level33013 A/P non EU Baan-specific accounts on a local level33014 Payments in transit Baan-specific accounts on a local level33016 Deduction for

payments in transitBaan-specific accounts on a local level

33017 Goods received, not invoiced

Baan-specific accounts on a local level

33018 Invoices not approved Baan-specific accounts on a local level33019 contra account goods

received, not invoicedBaan-specific accounts on a local level

Trade payables should be split between payables against domestic companies and companies in and out of the EU. Current recognition and derecognition are booked to the accounts 33010-33013 for third parties. Fair value adjustments for IFRS purposes (e.g. foreign currency conversion) are booked to the account 33020.


Purchasing of raw materials from a third party supplier (domestic)Purchase price net: 1.000 €VAT in %: 16

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# name debit # name credit10210 Raw materials 1.000 3301

0A/P domestic 1.160

14115 VAT 160

Purchasing of a raw material in a foreign currency (USD) at 31.1.2005 (invoice and delivery date)Purchasing price net: 10.000no VATterms of payment: 90 days netConversion rate at 31.01.2005: 1 USD = 0,90 € initial measurement = 10.000 x 0,90 = 9.000 €


# name debit # name credit10210 Raw materials 9.000 3301

0A/P non EU 9.000

14115 VAT 160

Conversion rate 31.3.2005: 1 USD = 0,95 €At the reporting date 31.3.2005, the trade payable must be measured using amortized cost. The foreign currency liability shall be translated by using the closing rate at the reporting date. A fair value adjustment has to be calculated.Amortized cost at 31.3.2005: 10.000 x 0,95 = 9.500 €The difference (= 500 €) between the initial value (9.000 €) and the subsequent measurement on 31.3.2005 (9.500 €) is booked to the account 33020 A/P fair value adjustment.

Accounting record:

# name debit # name credit75210 Exchange losses 500 3301

0A/P non EU 500

An exchange gain would be booked to the account 71110.

Booking of received goods in transitGoods in transit from a third party supplier, amount 5.000 €Accounting transaction:

# name debit # name credit11510 Goods in transit 5.000 3301

7Goods received, not invoiced

5.000

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At every reporting date the amount of goods in transit must be calculated.

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3.4.22. Short-term borrowings3.4.22.1. Recognition / Definition

Short-term borrowings are classified as financial instruments, specifically financial liabilities. For initial recognition, an entity shall measure a financial liability at its fair value plus transaction cost.

3.4.22.2. Valuation After initial recognition, an entity shall measure all financial liabilities at amortized cost. Exceptions are liabilities which include a derivative. Explanation to this exception please find under section 3.4.8.

3.4.22.3. Presentation in the Financial StatementsBalance SheetFor the presentation in the balance sheet short-term borrowings must be shown in line 29 of the basic reporting documents.


(a) Information about the extent and nature of the financial instruments, including significant terms and conditions that may affect the amount, timing and certainty of future cash flows; and


Accounts

# name description33210 Liabilities to banks

within 1 year (current account)

self-explanatory

33220 Loans (under 1 year) self-explanatory33230 Other short term

borrowingsother than loans and liabilities to banks e.g. short-term hedge liabilities

Related accounts

# name description77715 Interest expense on

loansInterest paid on loans from bank or other source.

3.4.22.4. Description of typical transactionsSee section 3.4.23.4.

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3.4.23. Current portion of long-term borrowings (see 3.4.18.)3.4.23.1. Recognition /Definition

Long-term borrowings are classified as financial instruments, specifically financial liabilities. For initial recognition, an entity shall measure a financial liability at its fair value plus transaction costs (see 3.4.18.1.). Because the balance sheet is presented according to maturity the current portion of long-term borrowings must be shown under current liabilities separately (see Presentation in the Financial Statements).

3.4.23.2. Valuation After initial recognition, an entity shall measure all financial liabilities at amortized cost. Exceptions are liabilities which include a derivative. Explanation to this exception please find under section 3.4.8.

3.4.23.3. Presentation in the Financial StatementsBalance SheetFor the presentation in the balance sheet long-term borrowings must be shown in two sections:

(a) Line 24 of basis reporting documents / balance sheet for the part with a maturity over 12 months (non-current liabilities)

(b) Line 30 of basis reporting documents / balance sheet for the part with a maturity under 12 months (current liabilities)


(a) Information about the extent and nature of the financial instruments, including significant terms and conditions that may affect the amount, timing and certainty of future cash flows; and


Accounts


banks under 1 year Current portion (under 12 months) of # 30110 and # 30115



33630 Other long-term borrowings under 1 year


Related accounts

See section 3.4.18.


See section 3.4.18.

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3.4.24. Short-term provisions3.4.24.1. Recognition / Definition of provisions

Definitions:A provision is a liability of uncertain timing or amount. It shall be recognized when: an entity has a present obligation (legal or constructive) as a result of a

past event, it is probable that an outflow of resources embodying economic

benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

If all of these conditions are not met, no provision shall be recognized.

A legal obligation is an obligation that arises from: a contract (through its explicit or implicit terms) legislation; or other operation of law.

A constructive obligation is an obligation that derives from an entity’s actions where

by an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities; and

as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities.

Difference between provisions and other liabilities:Provisions can be distinguished from other liabilities such as trade payables and accruals because there is uncertainty about the timing or amount of the future expenditure required in settlement. By contrast

a) trade payables are liabilities to pay for goods or services that have been received or supplied and have been invoiced or formally agreed with the supplier,

b) accruals are liabilities to pay for goods or services that have been received or supplied but not been paid, invoiced or formally agreed with the supplier, including amounts due to the employees. Although it is sometimes necessary to estimate the amount or timing of accruals, the uncertainty is generally much less than for provisions.

Differentiation between long-term and short-term provisions:A provision should be shown under short-term provisions if the maturity is less than twelve months away.

COMPANY policy: Accruals shall be shown under other liabilities according to IAS

although they have an aspect of uncertainty like provisions. Additional worksheets as described under 3.4.24.4. have to be filled

out.

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3.4.24.2. Valuation

Best estimate: The amount recognized as a provision shall be the best estimate of the expenditure required to settle the present obligation at the balance sheet date.

Risks and uncertainties: The risks and uncertainties that inevitably surround many events and circumstances shall be taken into account in reaching the best estimate of a provision.

Present value : Where the effect of the time value of money is material, the amount of a provision shall be the present value of the expenditures expected to be required to settle the obligation.

There are four special rules for the application of the recognition and measurement of provisions:

1) Provisions shall not be recognized for future operating losses. 2) If an entity has a contract that is onerous, the present obligation

under the contract shall be recognized and measured as a provision.

3) A provision for restructuring costs shall be recognized only when the general conditions are met. In the COMPANY Group there is no need for such a provision.

4) A provision for waste disposal costs, recultivation or similar costs shall be recognized only when the general conditions are met. In the COMPANY Group there is no need for such a provision.

3.4.24.3. Presentation in the financial statement

In the balance sheet, provisions can be found in two lines. According to IFRS, there must be a differentiation between long-term and short-term provisions. Long-term provisions are a part of the non-current liabilities (see 3.4.20.) and short-term provisions have to be shown under current liabilities.

In the notes, the following basic disclosures must be given:For each class of provision, an enterprise should disclose:a) the carrying amount at the beginning and end of the period,b) additional provisions made in the period, including increases to existing

provisions,c) amounts used (i.e. incurred and charged against the provision) during the

period,d) unused amounts reversed during the period; ande) the increase during the period in the discounted amount arising from the

passage of time and the effect of any change in the discount rate.

Comparative information is not required.

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An enterprise should disclose the following for each class of provision:a) a brief description of the nature of the obligation and the expected timing of

any resulting outflows of economic benefits,b) an indication of the uncertainties about the amount or timing of those

outflows. Where it is necessary to provide adequate information, an enterprise should disclose the major assumptions made concerning future events; and

c) the amount of any expected reimbursement, stating the amount of any asset that has been recognized for that expected reimbursement.

In the GFC Chart of accounts the following accounts are included:

# name description34510 Provision for

corporate income taxself-explanatory

34520 Provision for other income-related tax

e.g. for German “Gewerbesteuer“ or similar taxes on income/profit of a company except corporate income tax

34530 Provision for corporate income tax prior years

see account 34510, referring to prior years

34540 Provision for other income-related tax prior years

see account 34520, referring to prior years

34590 Provision for other taxes

e.g. provisions for taxes in connection with a tax audit by fiscal authorities, can also include other taxes than income taxes like taxes on wages for example

34610 Provision for warranty (short-term)

warranties that have a maturity under twelve months

34620 Provision for professional fees

e.g. provisions for expenses for a lawyer for which the amount and maturity is not known exactly

34690 Other short-term provisions

to be identified

Related accounts:Related accounts are the accounts under

3.4.20. (long-term provisions) # 30710 - # 30740 3.4.26. (other liabilities / accruals) # 35610 - # 35690 for provision for taxation: current tax payable (# 34810 - # 34840) the corresponding tax expense/income accounts in the income

statement (# 79310 - # 79335) the corresponding other expense accounts in the income statement

(e.g. # 58120 warranty expense)

3.4.24.4. WorksheetsFor GFC purposes the attached worksheet has to be filled out for quarterly and yearly reporting (see also attachment 10).

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The attachment has to be filled out the following way: as of January 1: the amount of the provision in the opening balance at

the beginning of the year in local currency translation difference: only for GFC purposes, is not to be filled out by

the affiliate use of provision: amounts used (i.e. incurred and charged against the

provision) during the period (see disclosures under 3.4.22.3.) reversal: unused amounts reversed during the period (see disclosures

under 3.4.22.3.) as of March 31/ June 30/ September 30/ December 31: the amount of

the provision at the end of the reporting period in local currency

Please be aware of the fact that the amount at the end of the reporting period has to be the same as shown in the trial balance under the corresponding account. Check this for the reporting package.

Please also be aware of the fact that the balance at year end has to be brought forward so that the amount at year end 2004 corresponds to the amount on January 1, 2005.


Example 1 Provision for professional fees (e.g. in context with an IFRS implementation)

book entry67510 Legal and

professional fees2.000,00 3462

0Provision for professional fees

2.000,00

Use of provision (when the invoice comes)34620 Provision for

professional fees1.700,00 1701


1.700,00

Rest to be reversed34620 Provision for

professional fees300,00 6751

0Legal and professional fees

300,00

For those affiliates using Baan: the reversal of a provision can be booked with a specific transaction code if the presentation in local GAAP (e.g. under other operating income) differs from the presentation under IFRS (same expense account). This makes the transactions easier to analyse. Example 2 An entity knows that within three months after balance sheet date expenses will arise for the maintenance of the building in the amount of 3.000 LC.

book entry-- -- -- -- -- --

No provisions need to be recognized because the entity has no present obligation.

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Example 3An enterprise operates profitably from a factory that it has leased under an operating lease for 10.000 LC per month. During December 2004 the enterprise relocates its operations to a new factory. The lease on the old factory continues for the next 12 months, and it cannot be cancelled and the factory cannot be re-let to another user.

Present obligation as a result of a past obligating event - The obligating event is the signing of the lease contract, which gives rise to a legal obligation.

An outflow of resources embodying economic benefits in settlement - When the lease becomes onerous, an outflow of resources embodying economic benefits is probable. (Until the lease becomes onerous, the enterprise accounts for the lease under IAS 17 Leases).

Conclusion - A provision is recognized for the best estimate of the unavoidable lease payments.

book entry64115 Lease of

premises120.000,00 3469

0Other short term provisions

120.000,00

The provision will be consumed over twelve months. There is no specific account in the GFC Chart of Accounts for lease of premises. Because of materiality, there should be a separate account on a local balance sheet level. This account should be mapped to #64110 rent of premises.

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3.4.25. Current tax payable (see 3.4.13.)3.4.25.1. Recognition /Definition

See 3.4.13. (Current tax receivables)

3.4.25.2. Valuation See 3.4.13. (Current tax receivables)

3.4.25.3. Presentation in the Financial StatementsBalance Sheet:See 3.4.13. (Current tax receivables)Notes:See 3.4.13. (Current tax receivables)AccountsSee 3.4.13. (Current tax receivables)Related accountsSee 3.4.13. (Current tax receivables)

3.4.25.4. WorksheetsSee 3.4.13. (Current tax receivables)

3.4.25.5. Description of typical transactionsSee 3.4.13. (Current tax receivables)

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3.4.26. Other Liabilities3.4.26.1. Recognition / Definition

Definition of other liabilities:Other liabilities which are not based on a contractual basis are not financial instruments. Other liabilities result from the residual amount against the liabilities which are financial instruments.Examples for other liabilities:

o Liabilities to affiliate companies (i.e. A/P affiliate)o Payments received in advance o Travel expenseso Accruals o Liabilities from wages and social security payableso VAT liabilitieso Other taxes payableo Deferred income

Recognition:An other liability is recognised in the balance sheet when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will take place can be measured reliably.

Accruals:Accruals are defined as liabilities to pay for goods or services that have been received or supplied but have not been paid, invoiced or formally agreed with the supplier. This includes amounts due to employees (e.g. amounts relating to accrued vacation pay). Although it is sometimes necessary to estimate the amount or timing of accruals, the uncertainty is generally much less than for provisions. This is the reason why accruals are shown under “other liabilities.”

3.4.26.2. Valuation

Initial measurement of other liabilities: When an other liability is recognized initially it is measured at the amount of cash expected to be paid to satisfy the liability. Normally there are no problems in measurement of other liabilities as the expected outflow of cash is determined by the calculation basis (e.g. contracts with employees, official notification).

Foreign currency liabilities:See chapter 3.4.21.2

Subsequent measurement of other liabilities:Regarding the Framework there are no special regulations for the subsequent measurement. The basic principle for the initial measurement has to be retained also for subsequent measurement. A gain or loss for an other liability is recognised in profit and loss.

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Balance Sheet and Notes:The regulations for trade payables in chapter 3.4.21.3. are also effective for other liabilities. In the balance sheet the other liabilities are presented in line 33 of the basic reporting documents.

Accounts:The following accounts of the COMPANY Group Chart of Accounts are included in other liabilities:

# name description35110 Liabilities from drafts

or bills of exchangeSelf-explanatory

35210 A/P affil. Includes accounts payable due to affiliate companies

35220 Fair value adjustment For GFC purposes only35310 Liabilities to

associated companiesSelf-explanatory; in very rare cases, dividends which were decided but not yet paid out should be shown here.

35410 Advance payments received

Self-explanatory

35510 Deposits (up to 1 year)

Self-explanatory

35520 Travel expenses (up to 1 year)

Self-explanatory

35530 A/R credit balances (up to 1 year)

Self-explanatory

35590 Other liabilities up to 1 year

Liabilities which do not belong to the other accounts; to be identified

35610 Accrual for audit Accruals for audit and tax returns which are prepared by an audit company

35620 Accrual for outstanding invoices

Invoices received after cut-off date for the reporting period (e.g. monthly telephone bills)

35630 Accrual for wages Includes any wage-related costs which are sufficiently estimable e.g. bonuses, profit sharing, additional payments as contracted etc.

35640 Accrual for holiday and vacation pay

Includes payments from the company to the employees e.g. an additional salary for holidays which has been earned but not paid

35690 Other accruals Other accruals than those described above35710 Wages and salaries

payableSelf-explanatory

35720 Social security payable

Self-explanatory

35730 Accosted wages35740 Pensions35790 Other liabilities/wages Other wage-related liabilities, except taxes

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# name description35810 VAT payable Net current year VAT amount, if payable

balance35890 VAT liabilities prior

yearsSelf-explanatory

35910 Payroll taxes payable Self-explanatory35950 Other taxes payable Other taxes than payroll payable36010 Deferred income Incomes which belong to future economic

periods36020 Unearned interest

incomeSelf-explanatory

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4. Income Statement

4.1. PRESENTATION OF INCOME STATEMENT4.1.1. Obligatory elements

Definition of incomeThe definition of income encompasses both revenue and gains. Revenue arises in the course of the ordinary activities of an enterprise and is referred to by a variety of different names including sales, fees, interest, dividends, royalties and rent.

Gains represent other items that meet the definition of income and may, or may not, arise in the course of the ordinary activities of an enterprise. Gains represent increases in economic benefits and, as such, are no different in nature from revenue. Hence, they are not regarded as constituting a separate element in the Framework.

Gains include, for example, those arising on the disposal of non-current assets. The definition of income also includes unrealized gains; for example, those arising on the revaluation of marketable securities and those resulting from increases in the carrying amount of long term assets. When gains are recognized in the income statement, they are usually displayed separately because knowledge of them is useful for the purpose of making economic decisions. Gains are always reported net of related expenses.

Various kinds of assets may be received or enhanced by income; examples include cash, receivables and goods and services received in exchange for goods and services supplied. Income may also result from the settlement of liabilities. For example, an enterprise may provide goods and services to a lender in settlement of an obligation to repay an outstanding loan.

Recognition of incomeIncome is recognized in the income statement when an increase in future economic benefits related to an increase in an asset or a decrease of a liability has arisen that can be measured reliably. This means, in effect, that recognition of income occurs simultaneously with the recognition of increases in assets or decreases in liabilities (for example, the net increase in assets arising on the sale of goods or services or the decrease in liabilities arising from the waiver of a debt payable).

The procedures normally adopted in practice for recognizing income (for example, the requirement that revenue should be earned) are applications of the recognition criteria in the Framework. Such procedures are generally directed at restricting the recognition of income to those items that can be measured reliably and have a sufficient degree of certainty.

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Definition of expensesThe definition of expenses encompasses losses as well as those expenses that arise through the course of the ordinary activities of the enterprise. Expenses that arise through the course of the ordinary activities of the enterprise include, for example, cost of sales, wages and depreciation. They usually take the form of an outflow or depletion of assets such as cash and cash equivalents, inventory, property, plant and equipment.

Losses represent other items that meet the definition of expenses and may, or may not, arise through the course of the ordinary activities of the enterprise. Losses represent decreases in economic benefits and, as such, they are no different in nature from other expenses. Hence, they are not regarded as a separate element in the Framework.

Losses include, for example, those resulting from disasters such as fire and flood, as well as those arising on the disposal of non-current assets. The definition of expenses also includes unrealized losses (for example, those arising from the effects of increases in the rate of exchange for a foreign currency in respect of the borrowings of an enterprise in that currency). When losses are recognized in the income statement, they are usually displayed separately because knowledge of them is useful for the purpose of making economic decisions. Losses are always reported net of related income.

Recognition of expenses Expenses are recognized in the income statement when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably. This means, in effect, that recognition of expenses occurs simultaneously with the recognition of an increase in liabilities or a decrease in assets (for example, the accrual of employee entitlements or the depreciation of equipment).

Expenses are recognized in the income statement on the basis of a direct association between the costs incurred and the earning of specific items of income. This process, commonly referred to as the matching of costs with revenues, involves the simultaneous or combined recognition of revenues and expenses that result directly and jointly from the same transactions or other events; for example, the various components of expense making up the cost of goods sold are recognized at the same time as the income derived from the sale of the goods. However, the application of the matching concept under the Framework does not allow the recognition of items in the balance sheet which do not meet the definition of assets or liabilities.

When economic benefits are expected to arise over several accounting periods and the association with income can only be broadly or indirectly determined, expenses are recognized in the income statement on the basis of systematic and rational allocation procedures. This is often necessary in recognizing the expenses associated with the using up of assets such as property, plant, equipment, goodwill, patents and trademarks. In such cases the expense is referred to as depreciation or amortization. These allocation procedures are intended to recognize expenses in the accounting periods in which the economic benefits associated with these items are consumed or expire.

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An expense is recognized immediately in the income statement when an expenditure produces no future economic benefits or when, and to the extent that, future economic benefits do not qualify, or cease to qualify, for recognition in the balance sheet as an asset.

An expense is also recognized in the income statement in those cases when a liability is incurred without the recognition of an asset, as when a liability under a product warranty arises.

4.1.2. Particularities4.1.2.1. Extraordinary result

An entity shall not present any items of income and expense as extraordinary items, either on the face of the income statement or in the notes. The International Accounting Standards Board (IASB) decided that items treated as extraordinary result from the normal business risk faced by an entity, and they do not want presentation in a separate component of the income statement.

4.1.2.2. Profit or loss of discontinued operationsAn entity shall disclose a single amount on the face of the income statement comprising the total of:

a. the post-tax profit or loss of discontinued operations; andb. the post-tax gain or loss recognized on the measurement to fair

value less costs to sell or on the disposal of the assets or disposal group(s) constituting the discontinued operation.

A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale, and (a) represents a separate major line of business or geographical area of

operations, (b) is part of a single coordinated plan to dispose of a separate major line

of business or geographical area of operations or (c) is a subsidiary acquired exclusively with a view to resale.

There is no relevance for this separate line in the income statement to the COMPANY Group.

4.1.2.3. Share of the profit or loss of associates and joint ventures An entity shall disclose the share of the profit or loss of associates and joint ventures accounted for using the equity method. Because WAG and its affiliates have no associates and / or joint ventures there is no relevance for this separate line in the income statement for the COMPANY Group.

4.1.2.4. Minority interestThe Standard requires the “profit or loss attributable to minority interest” and the “profit or loss attributable to equity holders of the parent” each to be presented on the face of the income statement in accordance with IAS 1. These amounts are to be presented as allocations of profit or loss, not as items of income or expense.

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At the moment, this separate line of the income statement is only relevant for GFC.

4.1.3. GFC standard formPlease find the GFC standard form attached in electronic form (attachment 2). In accordance with IAS 1, the IFRS team decided to show the following lines of the income statement separately:

Revenue Cost of sales Sales and service expenses Research and development expenses General administrative expenses Other income Other expenses Financial result Taxes on income Minority interests Profit for the period

4.1.4. General Chart of Accounts - income and expense accountsPlease refer to attachment 5 (General Chart of Accounts) for an overview of all income and expense accounts with descriptions.

For segment reporting purposes it is necessary to give a breakdown of Sales and Cost of Sales by SBF.

Sales accounts have to deliver the following information (whether by account or by dimension):

o Affiliate or non-affiliate (intercompany sales breakdown by affiliate is necessary)

o Sales to third parties must be broken down by SBF 1-5 according to the sales structure given in attachment 9

o Only in very rare cases (please be aware of materiality!) when a sale is generated with a customer who does not belong to the geographical segment of the affiliate company (Europe, Asia or Americas) does this information has to be given. (For example. WFP delivers to a customer (not WCH or another affiliate) in Hong Kong 25 % of its sales.)

To give every affiliate the free space of structuring its sales accounts to its own needs and technical possibilities, only two accounts (sales intercompany and sales third parties) are foreseen in the Group Chart of Accounts. It is up to you if you book by accounts or by dimension.

Cost of Sales accounts have to deliver the following information (whether by account or by dimension):

o Cost of Sales referring to affiliates or non-affiliates (inter-company breakdown by affiliate is necessary)

o Cost of Sales for the sales to third parties broken down by SBF 1-5

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Similar to sales only two basic accounts (Cost of Sales intercompany and Cost of Sales third parties) are foreseen in the Group Chart of Accounts. Variances and other Cost of Sales were also implemented.

4.1.5. Cost departmentsIt was decided that the following cost departments should be implemented at a minimum:

Production (flows into inventory cost and cost of sales) Selling Logistics (for internal purposes only, will be part of total sales and

service expenses) Research and development General administrative

Every transaction in the income statement shall be booked with a cost department code (if necessary) to allocate all costs to the corresponding lines of the income statement.

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4.2. DEFINITION OF ELEMENTS OF INCOME STATEMENT4.2.1. Revenues

This section applies to accounting for revenue arising from the following transactions and events:

sale of goods rendering of services use by others of entity assets yielding interests, royalties and dividends

In the COMPANY business, revenue is earned through selling, service and rental to customers. Sales to other companies within the COMPANY Group must be shown separately. Internal service charges are not considered as revenue. All goods shipped or services performed must be invoiced and no invoices will be made for goods not yet shipped. This means that for a long-term rental contract, invoices must be made monthly.

In the standard Chart of Accounts there are only the following revenue accounts:

# name description41010 Sales third parties See attachment 542010 Sales intercompany See attachment46010 Cash Discounts on sales third

partiesSee attachment

47010 Cash Discounts on sales intercompany

See attachment

Revenue will be booked on accounts or sub-accounts (dimensions) according to the structure defined below. The sales report is standardized for all entities to give management a focused and comparable overview of the sales business. Supplementary to the segment reporting by strategic business field, the sales report gives a more detailed overview of the relevant sales categories for internal reporting. The structure remains the same for all units and analytical entities, i.e. lead company, intercompany sales, affiliates, customer groups, regions, etc.

4.2.1.1. Sales of New Machines

Included: Sales of new machines SBF 1-4 Credit notes for new machines SBF 1-4 Discounts or rebates for sales of new machines SBF 1-4 Bonus payments for sales of new machines SBF 1-4

Excluded: Sales of used machines Trade-ins of used machines Sales of compact machines (Bobcat, Thwaites) Sales of other non-COMPANY machines

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The new machines are grouped into strategic business fields (SBF). Each item is allocated to a statistic code, each statistic code belongs to a product group or planning code and these in turn are part of the strategic business fields. The following are the planning codes for SBF 1-4:

SBF 1111 Motor in head vibrators (IREN, IRFUN, etc.)112 Pneumatic internal vibrators (LIR, PIR)113 HMS systems (HMS)114 Pendulum internal vibrators (IRP)121 Electric external vibrators (AR)122 Pneumatic external vibrators (PAR) 131 Portable converters (FU, FUE ≤ 5kVA)135 Stationary converters (SFU, FUE > 5kVA)141 Hand trowels (CT)145 Ride-on trowels (CRT)150 Buggies161 Truss Screeds165 Wet Screeds199 Others/Discount/Bonus SBF1

SBF 2210 Rammers220 Single direction plates231 Reversible plates (≤ 30kN)235 Reversible plates (> 30kN)241 Hand-held asphalt rollers245 Ride-on asphalt rollers ≤ 2.5t250 Trench rollers299 Others/Discount/Bonus SBF2

SBF 3310 Small elec. breakers (6-7 kg)320 Mid-size elec. breakers (8-14 kg)330 Big elec. breakers (over 15 kg)340 Gas breakers350 Hand-held saws (BTS)360 Floor saws (BFS, DFS, EFS)399 Others/Discount/Bonus SBF3

SBF 4410 Trash pumps (PT)420 Diaphragm pumps (PD)430 Clear water pumps (PG)441 Single-phase submersible pumps (PS)445 Three-phase submersible pumps (PS)450 Mobile generators (G12-200)460 Portable generators (G2.1-GS12)470 Lighting (LT)499 Others/Discount/Bonus SBF4

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Under sales of new machines only net sales of new machines from SBF1-4 are included. This means net of returns and all discounts. Credit notes for trade-ins which will be scrapped are actually a discount and must be deducted from the appropriate revenue for the machine sold. Also credit notes or discounts for trade-ins in excess of the value of the trade-in machine must be treated as a discount for the sale of the machine. Only the portion of the credit note which represents the value of the trade-in machine is treated as a machine purchase and is not deducted from machine revenue. In this way the real net turnover for each machine in the appropriate category will be shown.

Another specialty in the COMPANY business is the payment of yearly bonuses to customers which attain a certain turnover for the year. This global percentage of sales is difficult to allocate to the individual machines sold during the year. A system must be installed to allocate these bonuses to the appropriate turnover categories. They must also be allocated to the appropriate accounting period. This means that accruals for expected bonuses must be made during the year.

The accounting system must differentiate between new and used machines. Sales of used machines are not shown here.

The principle of correct allocation of discounts and rebates must be applied also for package pricing (a set price for several machines) and rebates in kind (free accessories or spare parts with the sale of a machine). To assure the correct calculation of margins, discounts must be split up into the elements of a sold package and a correct net price for each item sold must be shown.

4.2.1.2. Service

Revenue from service is composed of spare parts and accessories sold, revenue from repairs, repairs miscellaneous and franchise revenue from service. Revenue from service for compact machines is excluded and will be shown under compact machines.

The following details of service revenue must be reported for internal purposes and will be explained in more detail:

o Spare partso Repairso Repairs miscellaneouso Franchise revenue service

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4.2.1.2.1. Spare parts

Included: Income from spare parts and accessories for COMPANY machines

SBF 1-4 and non COMPANY machines sold Credit notes for spare parts and accessories for COMPANY machines

SBF 1-4 and non COMPANY machines sold Discounts on spare parts and accessories for COMPANY machines

SBF 1-4 and non COMPANY machines sold Bonus payments for sales of spare parts and accessories for

COMPANY machines SBF 1-4 and non COMPANY machines

Excluded: Revenue from spare parts and accessories for repairs (parts used in

performing a repair) Spare parts for compact machines (Bobcat, Thwaites)

The accounting system must assure the distinction between spare parts sold and those used in performing a repair. The identification as a sold item is can be done by order type. Spare parts for compact machines are excluded.

Package pricing and rebates in kind: As mentioned above, in order to insure the correct calculation of margins, discounts must be split into the elements of the sold package.

4.2.1.2.2. Repairs

Included: Income from spare parts, accessories and wages for repairs of

machines SBF 1-4 and non COMPANY machines Credit notes for spare parts, accessories and wages for repairs of

machines SBF 1-4 and non COMPANY machines Discounts for spare parts, accessories and wages for repairs of

machines SBF 1-4 and non COMPANY machines Bonus payments for spare parts, accessories and wages for repairs of

machines SBF 1-4 and non COMPANY machines Warranty costs for repairs of machines SBF 1-4 and non COMPANY

machines Change in accrual for guarantee obligations

Excluded: Revenue from selling spare parts and accessories Repairs of compact machines (Bobcat, Thwaites)

Repairs must be separated from the sale of spare parts not used in performing repairs. Repairs for compact machines are excluded and allocated to the revenue for compact machines.

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Package pricing and rebates in kind: As mentioned above, to assure the correct calculation of margins, discounts must be split up into the elements of the sold package.

Insurance recovery for repairs will be shown as repair revenue (not as other income). This could be the case if damage to a machine is covered by insurance.

If COMPANY performs warranty repairs for a supplier who reimburses COMPANY for these services, these warranty payments from suppliers for repair must affect the contribution margin of repair directly and must be allocated to repairs. This should be done through direct invoicing of the repair to the supplier.

4.2.1.2.3. Repairs miscellaneous

Included: Revenue from items besides spare parts, accessories and wages on

repair orders. This could be freight costs, environmental/disposal fees, fuel, etc.

Excluded: Revenue from selling orders Repairs on compact machines

Income from repairs miscellaneous is included in repair orders for machines SBF 1-4 and non COMPANY machines and excluding compact machines. It encompasses the income from repair of all items within statistic group 590000 to 599998 or unclassified items. Repairs miscellaneous encompass mainly freight for repairs and unclassified items as small parts and expendable items.

4.2.1.2.4. Franchise revenue service

Service revenue achieved by contractual partners like Equipro, is allocated here as a total. It contains all elements of income such as spare parts, wages, fees and royalties.

4.2.1.3. Rental

Revenue from rental is composed of income from renting, income from rental miscellaneous and sales of used rental machines.

The following details of rental revenue must be reported for internal purposes and will be explained in more detail:

o Rentingo Rental miscellaneouso Rental used machines

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4.2.1.3.1. Renting

Renting encompasses the income from renting machines and accessories and credit notes concerning rented machines and accessories (i.e. bonus payments). This includes also fees for demonstration of machines and accessories.

If a machine is rented to a customer with the option to buy where the rental fees are applied to the purchases price, at the time when a customer decides to buy the machine a credit note for the rental fees will be made and the complete price of the machine invoiced as a sale. If a rental contract is actually a finance lease, it must be accounted for as a sale (see section on finance leases).

4.2.1.3.2. Rental miscellaneous

Rental miscellaneous revenue encompasses items within statistical group 590000 – 599998, 600000 – 699999, which is mainly freight, fuel and deductibles or unclassified items, which are included on a rental invoice.

4.2.1.3.3. Rental used machines

Revenue from the sale of used rental machines is allocated to rental and must be separated from other used machines. Rental machines are included in fixed assets and depreciated. Normally the sale of fixed assets is shown under other income/expense, but the sale of rental machines is considered an integral part of rental revenue. A system must be in place to separate revenue from sold used rental machines.

4.2.1.4. Miscellaneous – Compact machines

Revenue from compact machines is allocated to miscellaneous and, due to its strategic relevance, is shown as a subtotal. It is composed of compact machines, compact machine accessories, used compact machines/accessories, compact machine spare parts, compact machine repairs and compact machines miscellaneous.

The following details of compact revenue must be reported for internal purposes and will be explained in more detail:

o Compact machineso Compact machines accessorieso Used compact machines/accessorieso Compact machines spare partso Compact machines repairso Compact machines miscellaneous

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4.2.1.4.1. New compact machines

Revenue for new compact machines includes sales and credit notes of new compact machines only. A system must be in place to separate sales of new and used compact machines.

Credit notes for trade-ins which will be scrapped are actually a discount and must be deducted from the appropriate revenue for the machine sold. Also credit notes or discounts for trade-ins in excess of the value of the trade-in machine must be treated as a discount for the sale of the machine. Only the portion of the credit note which represents the value of the trade-in machine is treated as a machine purchase and is not deducted from machine revenue. In this way the real net turnover for each machine in the appropriate category will be shown.

Another specialty in the COMPANY business is the payment of yearly bonuses to customers which attain a certain turnover for the year. This global percentage of sales is difficult to allocate to the individual machines sold during the year. A system must be installed to allocate these bonuses to the appropriate turnover categories. They must also be allocated to the appropriate accounting period. This means that accruals for expected bonuses must be made during the year.

The accounting system must differentiate between new and used machines. Sales of used machines are not shown here.


Agreed payments from suppliers of compact machines to protect our margin in inevitable low price deals must directly affect the contribution margin for sales of compact machines. This should be implemented through direct invoicing to suppliers of compact machines.

4.2.1.4.2. Compact machine accessories

Sales of new compact machine accessories only include sales and credit notes of new compact machines accessories. The separation between new and used compact machine accessories must be determined by the accounting system. Sales of used compact machine accessories are not shown here.

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Credit notes for trade-ins which will be scrapped are actually a discount and must be deducted from the appropriate revenue for the machine sold. Also credit notes or discounts for trade-ins in excess of the value of the trade-in machine must be treated as a discount for the sale of the machine. Only the portion of the credit note which represents the value of the trade-in accessory is treated as an accessory purchase and is not deducted from accessory revenue. In this way the real net turnover for each accessory in the appropriate category will be shown.

Another specialty in the COMPANY business is the payment of yearly bonuses to customers which attain a certain turnover for the year. This global percentage of sales is difficult to allocate to the individual items sold during the year. A system must be installed to allocate these bonuses to the appropriate turnover categories. They must also be allocated to the appropriate accounting period. This means that accruals for expected bonuses must be made during the year.


Agreed payments from suppliers of compact machines to protect our margin in inevitable low price deals must directly affect the contribution margin for sales of compact accessories. This should be implemented through direct invoicing to suppliers of compact accessories.

4.2.1.4.3. Used compact machines/accessories

Revenue from sold used compact machines and accessories is allocated to compact machines and must be separated from other used machines.

Credit notes for used compact machines and accessories and trade-ins of used compact machines and accessories have to be shown here.

4.2.1.4.4. Compact machine spare parts

Included: Income from spare parts for compact machines sold Credit notes from spare parts for compact machines sold Discounts for spare parts for compact machines sold Bonus payments for sales of spare parts for compact machines

Excluded: Revenue from spare parts and accessories used for repairs (repair

order). Revenue from compact machine accessories. Spare parts and accessories for COMPANY machines SBF 1-4 and

non COMPANY machines.

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4.2.1.4.5. Compact machine repairs

Included: Income from spare parts for compact machines and wages for repair of

compact machines/accessories Credit notes from spare parts and wages for repair of compact

machines/accessories Discounts for spare parts and wages for repair of compact

machines/accessories Revenue from repair of items within statistical group 590000 to 599998

and unclassified items used in repair of compact machines/accessories

Bonus payments for spare parts and wages for repair of compact machines/accessories

Warranty costs for repairs of compact machines/accessories.

Excluded: Revenue from selling orders Repairs, spare parts and accessories for COMPANY machines SBF 1-

4 and non COMPANY machines

Repairs must be separated from the sale of spare parts not used in performing repairs. Repairs for COMPANY machines and other non COMPANY machines are excluded.

Package pricing and rebates in kind: As mentioned above, to assure the correct calculation of margins, discounts must be split up into the elements of the sold package.

Insurance recovery for repairs will be shown as repair revenue (not as other income). This could be the case if damage to a compact machine is covered by insurance.

If COMPANY performs warranty repairs for a supplier who reimburses COMPANY for these services, these warranty payments from suppliers for repair must affect the contribution margin of repair directly and must be allocated to repairs. This should be done through direct invoicing of the repair to the supplier.

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4.2.1.4.6. Compact machines miscellaneous

Compact machines miscellaneous encompasses items within statistical group 590000 – 599998 (which is mainly freight or unclassified items) on selling orders (not repair orders) of new and used compact machines/accessories.

4.2.1.5. Miscellaneous - Others

Revenue from miscellaneous excludes compact machines and is composed of used machines, other non-COMPANY machines, freight revenue from selling, and other sales.

The following details of miscellaneous revenue must be reported for internal purposes and will be explained in more detail:

o Used machineso Other non-COMPANY machineso Freight revenue sellingo Other sales

4.2.1.5.1. Used machines

Included: Sales of used machines SBF 1-4 Credit notes for used machines SBF 1-4 Discounts for sales of used machines SBF 1-4 Bonus payments for sales of used machines SBF 1-4

Excluded: Sales of new machines Credit notes for new machines Sales of new and used non COMPANY machines Sales of new and used compact machines (Bobcat, Thwaites)

Sales of used machines focus on used machines from SBF1-4 and only include sales and credit notes of used machines. The separation between new and used machines must be ensured by the accounting system. Sales of new and used non-COMPANY and compact machines are excluded.

4.2.1.5.2. Other non-COMPANY machines

Included: Sales of new and used non-COMPANY machines Credit from new and used non-COMPANY machines Discounts for sales of new and used non-COMPANY machines Bonus payments for sales of new and used non COMPANY machines

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Excluded: Sales of new and used machines SBF 1-4 Sales of new and used compact machines Credit notes for new and used machines SBF 1-4 Credit notes for new and used compact machines

Sales of non-COMPANY machines include sales and credit notes of non-COMPANY machines other than compact machines and not sales of new and used machines SBF 1-4...

4.2.1.5.3. Freight revenue selling

Freight revenue from selling includes items with statistic group 599980 billed on selling orders without compact machines. A separation of freight between SBF 1-4 and spare parts is not possible on a mixed invoice (machine with spare parts) and will be shown here.

4.2.1.5.4. Other sales

Other sales includes items within statistical group 590000 – 599997, 599981– 599998 (excluded 599980 freight) and unclassified items not shown anywhere in the above categories. This could be the sale of COMPANY Club products, advertising material, etc.

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4.2.2. Cost of salesThe cost of sales is the cost of all goods and services sold during the period. For machines and spare parts, this is generally the cost of the goods calculated in a manner similar to the value in inventory. However, there are some other components of cost of sales that are not included when valuing inventory, which are discussed below.

For services provided, the costs of the services are also cost of sales. For rental revenue, this includes the depreciation of the rental machines and the cost of repairing and servicing them. For the sale of used rental machines, it is the book value of the machines sold. For repairs, the cost of sales is the cost of all materials used in the repair. At the moment, it will not be COMPANY policy to consider the labour cost of the service personnel as cost of sales for repairs, as these persons also perform other duties and the effort required to determine these costs reliably is not cost effective. For revenue from charges to customers for freight, the costs of outbound freight are the cost of sales. For Equipro, all costs are incurred by the subsidiary company and can be allocated to cost of sales reliably.

4.2.2.1. Finished goods and spare parts

Calculation of COS without using standard costs

For a trading company (which most of the affiliates are), the calculation of the cost of goods sold for finished goods and spare parts is relatively simple. Total purchase costs must be adjusted by the amount of the change in inventory to arrive at the cost of the goods which have been sold.

Total purchase costs include all costs of getting the goods to the location and in condition to be sold (e.g. import duties and other taxes, transport costs, handling costs directly attributable to the acquisition and less any discounts or rebates received on the purchases). Realized exchange gains and losses on these purchases are also part of the purchase costs. If machines in stock become damaged and must be repaired, these costs are also part of COS.

At the end of the period total goods in stock are valued at cost (also see the section on inventories). This valuation must be done on a monthly basis. The difference between inventories at the beginning of the period and the end of the period is then deducted or added to the total purchase and other costs to arrive at the total cost of the goods sold. This change in inventories would include inventory differences due to loss or scrapping of goods and the use of spare parts for repair of demonstration machines or for warranty repairs.

After the inventories are valued at cost, an analysis must be made to determine whether the net realizable value of any item is less than its cost. If this is so, an allowance for inventories must be booked. The change in this allowance is also part of the cost of the goods sold.

A summary of cost of goods sold for finished goods and spare parts:

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purchase cost+ import duties and other taxes + freight-in costs + handling costs directly attributable to the acquisition- trade discounts, rebates and other similar items exchange gains/losses on purchases change in inventories change in adjustment to net realizable value = cost of goods sold

An affiliate using this method will have an account for each of the above items. They are to be reported to the following Group accounts:

# name description51010 CoS third parties See attachment 552010 CoS intercompany See attachment 558970 Inventory allowances See attachment 5

In addition to reporting the cost of goods sold separately for sales to third parties and to affiliates, the cost of goods sold must be reported in detail by product group and SBF in the same detail as sales (see section on sales). This should be done through the use of a product dimension (similar to a cost department) in your accounting system or through sales analysis reports obtained from the logistics module of your accounting system. The cost per item used for these statistics (which will be the same as the value used to value inventory at cost) will most likely not include all of the items listed above (i.e. discounts, inventory allowance, etc.). Therefore, it will be necessary to allocate these costs to each detail line of the cost of sales.

Calculation of COS using standard costs

For those affiliates using Baan, as well as any other system that uses standard costs, the calculation of cost of goods sold (and the cost of inventory) will be based on standard cost calculations. For details of what costs are included in each cost component refer to the section on inventories.

This means that goods when purchased or produced will be booked into inventory at standard cost and removed from inventory at standard cost when sold. The difference between standard costs and actual costs will be accumulated and allocated to inventory and cost of goods sold as necessary. It is COMPANY policy to update material standard costs on a weekly basis so that differences between standard and actual costs due to price and exchange rate changes will be kept to a minimum. The rates to apply factory overhead will be recalculated on a quarterly basis.

Standard costs have the following components: material cost material overhead (freight, duty, handling, discounts, etc.)

and for goods which are produced manufacturing overhead (labour, direct and indirect factory costs).

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The use of standard costing results in the calculation of several variances:Price variancesFor material costs there may be a difference between

standard cost and the price on the purchase order (price variance), between purchase order and invoice (payment variance) and exchange difference when the invoice is paid.

In addition there may be set-up charges from suppliers that cannot be inventoried. These can be set-up or expedition charges for special or extraordinary handling, processing, or timing. Such charges cannot be included in the inventory per IAS 2.Material overhead variancesFor material overhead, there will be a difference between:

actual costs for duty, handling, freight, etc. and material overhead allocated. Affiliates that manufacture may also have purchasing department costs and tool depreciation at suppliers absorbed in this manner.

Conversion cost variancesIn addition to the above, there will be a variance for manufactured products between

actual manufacturing costs for labour, labour overhead and manufacturing overhead (depreciation, utilities, etc.) and factory overhead absorbed.

In addition, whenever a revaluation to new standards is made, there will be a revaluation difference.

In order to be able to analyze variances to standard, each of the above components and variances should be booked to a separate account in the P&L. The actual manufacturing costs will be booked to factory cost centres in the appropriate accounts.

Other transactions will also result in an adjustment to total costs of goods sold: inventory differences due to loss of goods inventory differences found during stock take, physical inventory or

cycle count scrapping of goods the use of spare parts for repair of demonstration machines the use of spare parts for warranty repairs

Again, each of these items should be booked to a separate account in order to be able analyze these differences.

After the inventories are valued at standard cost, an analysis must be made to determine whether the net realizable value of any item is less than its cost. If this is so an allowance for inventories can be booked, then the change in this allowance is also part of the cost of the goods sold.

All of the above-mentioned transactions and accounts become part of the total cost of goods sold for machines and spare parts. These accounts will then be reported on a Group level to the following accounts:

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# name description51010 CoS third parties This is the standard cost on the system

of any inventory item sold during a period. See the section on Inventory for a detailed description of the components of this cost and the associated calculation methods. Suffice it to say that as each inventory item is sold, its cost is moved out of inventory and into COS.

52010 CoS intercompany The accumulation of the standard costs related to sales to the Affiliates.

58010 Price variances Difference between standard material costs and actual price paid on invoice.

58020 Material overhead variances

Difference between actual costs for freight, duty, handling, discounts and exchange differences on purchases and the amount absorbed to standards for material overhead.

58030 Conversion cost variances

For affiliates that manufacture, this section shows the conversion cost expenses in relation to the absorption earned in the production process.

58090 Other variances58910 Inventory differences This account can include any of the

following items: difference between the

perpetual inventory records and either a cycle count or a full physical inventory

timing differences between the receipt and invoicing of Vendor Managed Inventory (VMI). This is most significant when new vendors are brought into the program.

for affiliates that manufacture products, this records any material usage in the manufacturing operation that does not match the standard bill of material. Such costs can not be capitalized (see Inventory section) and must be recognized as an expense immediately.

difference when inventory is revalued due to the standard cost changing as a result of updates to purchase prices, conversion costs, exchange rates or material add-ons.

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# name description58960 Warranty costs The cost of spare parts used in repairs

not charged to customers.58970 Inventory allowances The amount of inventory adjustment to

arrive at net realizable value.58980 Demo maintenance The cost of spare parts used in repairs

of demonstration equipment.

In addition to reporting the cost of goods sold at standard separately for sales to third parties and to affiliates, the cost of goods sold must be reported in detail by product group and SBF in the same detail as sales (see section on sales). This should be done through the use of a product dimension (similar to a cost department) in your accounting system or through sales analysis reports obtained from the logistics module of your accounting system. The standard cost per item used for these statistics will not include all of the items listed above. Therefore, it will be necessary to allocate those costs not included in standard costs (variances, inventory differences, warranty, demo maintenance and inventory allowances) to each detail line of the cost of sales for machines and spare parts.

For reporting purposes it will also be necessary to report purchases from COMPANY affiliates by company. This can be achieved by using the cost centre dimension to accumulate purchases by company.

4.2.2.2. Cost of sales for services and misc. sales

The above section dealt with the cost of sales for goods which are purchased or manufactured. There are other costs of sales which concern services provided or miscellaneous sales. In some cases, goods may be purchased specifically for sale that are not kept in inventory or not part of the standard cost calculation system. In other cases, services may be purchased (i.e. outside repairs for non-COMPANY machines or from service contractors).

Particularly in the rental business, there are special related costs. The depreciation of the rental machines, outside repairs for rental machines and the book value of capitalized rental machines sold are all part of cost of sales for the rental business.

Miscellaneous sales also include the sale of used machines. These can be demonstration machines which have been booked at a reduced value in inventory, or trade-in machines “purchased” from customers through a rebate on the purchase of a new machine. In those cases where a machine is taken as a trade-in from a customer with the intent to be resold, this machine must be accounted for as a purchase and not as a rebate. These costs then go into CoS when the machine is sold.

Because freight is charged out to customers, the cost of outbound freight is the applicable cost of sales to these revenues. It will be COMPANY policy to consider all outbound freight, including freight between COMPANY warehouses, as cost of sales for misc. sales.

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# name description58920 Rental

depreciationWhen COMPANY decides to rent equipment to a customer, that equipment must be capitalized as a fixed asset. The equipment will be depreciated per the fixed asset section of the Accounting Manual. The depreciation charges must be charged to this account.

58925 Rental - book value machines sold

book value retirement of rental equipment which is sold

58930 Rental repairs All repair costs related to rental equipment must be expensed to this account.

58940 Trade-ins Used machines can be acquired as a trade-in from selling our customers a new machine or by purchasing the machine in the marketplace. These machines may need to be repaired before reselling. All costs associated with bringing the machine to a saleable condition need to be capitalized and expensed when the used machine is sold. These machines may not have a standard cost in the system.

58950 Outbound freight Freight out or outbound freight is often prepaid by the COMPANY affiliate and then invoiced to the customer. The corresponding cost is recorded in this account.

58990 Other CoS Any other costs paid to third parties not covered in any of the above accounts.

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4.2.3. Sales and service expensesSales and Service Expenses (line number 4 on the Income Statement, see attachment 2) include all costs related to the company’s efforts to generate sales. These expenses include selling and logistic costs. Selling costs include the cost of the sales force salaries, commissions, travel, advertising, delivery expenses, depreciation on their assets, supplies, bad debts, credit card fees, etc. Logistics costs would encompass the cost of persons working in the warehouse (receiving and shipping) and possibly doing order processing as well as costs associated with the warehouse itself. Smaller affiliates need only use two cost centres to capture these expenses. They should establish a budget and charge the actual expenditures related to sales, marketing and distribution to these cost centres.

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4.2.4. Research and development expenses Research and Development expenditures (line number 5 on the Income Statement, see attachment 2) will only be used by the manufacturing companies. This line item provides a summary of expenses related to the company’s efforts to develop new products. Expenses included in this area will include all those related to the R&D department, design engineering and the technical publications area.

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4.2.5. General administrative expensesGeneral administrative expenses (line number 6 on the Income Statement, see attachment 2) include all costs not allocated to other cost centres. These expenses include officers and office salaries, office supplies, depreciation on administrative assets, costs associated with premises for administration, telephone, postage, accounting, legal services, human resources, IT, etc. Smaller affiliates need only use one cost centre to capture these expenses. They should establish a budget and charge the actual expenditures related to sales, marketing and distribution to this cost centre.

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4.2.6. Other incomeThis area includes revenues that are not related to the central operations of the company. Specific items that are recorded here include

foreign currency gains from revaluation of assets or liabilities denominated in foreign currencies such as cash, accounts receivable and accounts payable,

net book value and proceeds on the sale of fixed assets or other non-current assets if a gain is realized, except for rental machines,

insurance claim refunds filed, except for stolen machines, collections on A/R previously written-off, income from prior years recognized in the current year.

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4.2.7. Other expensesThis area includes expenses that are not related to the central operations of the company. Specific items that are recorded here include

foreign currency losses from revaluation of assets or liabilities denominated in foreign currencies such as cash, accounts receivable and accounts payable,

net book value and proceeds on the sale of fixed assets or other non-current assets if a loss is realized, except for the sale of rental machines,

expenses from prior years recognized in the current year.

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4.2.8. Financial resultsThe Financial Results area focuses on the activity of the company’s investments. Gains and losses on the sales of securities, interest income and expense and the amortization of premiums are all included in this section of the income statement. Basically three sections can be differentiated:

Income from investments Interest and similar income Interest and similar expenses

See attachment 5 (General Chart of Account) for the detailed account numbers for this section including their description.

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4.2.9. Taxes on incomeTaxes on income include:

Current income taxes Deferred income taxes

In correspondence with the balance sheet, taxes on income have to be shown in a separate line of the income statement. In order to meet disclosure requirements taxes must be booked on the following accounts:

# Name Description79310 Corporate income tax

paidOnly that part of income tax which was paid in cash

79315 Corporate income tax accrued

Only that part of income tax which was accrued

79320 Other income-related tax paid

Only that part of income-related tax which was paid in cash

79325 Other income-related tax accrued

Only that part of income-related tax which was accrued

79330 Deferred income tax - income

Changes in deferred tax asset / liabilities from one reporting period to the other reporting period which result in an income

79335 Deferred income tax - expense

Changes in deferred tax asset / liabilities from one reporting period to the other reporting period which result in an expense

For further details please see comments on current tax receivables / payables (3.4.13.) or deferred tax assets / liabilities (3.4.7.)

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Cash flow statementDate:

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5. Cash Flow Statement

5.1. PRESENTATION OF CASH FLOW STATEMENT

The cash flow statement shall report cash flows during the period classified by operating, investing and financing activities in a manner which is most appropriate to a company’s business. In practice the cash flow is generated by the indirect method which means the cash funds at the end of one reporting period are compared to the cash funds at the end of the following reporting period. The difference / change can be explained by the change of every position in the balance sheet. The changes of the positions in the balance sheet are then allocated to the operating, investing and financing activities of the company.

Please be aware of the fact that changes in balance sheet positions have the following effects on the cash funds:

Increase of assets - Decrease of assets + Increase of liabilities + Decrease of liabilities -

5.1.1. Condensed versionThe condensed version of the cash flow includes only the sum lines of the full version (see attachment 3) of the cash flow statement:

cash flow from operating activities cash flow from investing activities cash flow from financing activities change of cash and cash equivalents cash and cash equivalents at beginning of period cash and cash equivalents at end of period

5.1.2. Full versionThe full version includes, in addition to the sum lines, the detailed breakdown of the cash flows from operating, investing and financing activities. These lines are described in detail in the sections 5.2. to 5.5.

5.1.3. WAG standard formThe COMPANY standard form (see attachment 3) has to be filled out for quarterly and yearly reporting. For monthly reporting a condensed version (see 5.1.1.) is sufficient.

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5.2. CASH FLOW FROM OPERATING ACTIVITIESThe cash flow from operating activities includes the following lines:

Profit before tax:Self-explanatory. See line 11 of the income statement (see attachment 2).

Depreciation and amortization:Self-explanatory. Includes depreciation and amortization as well as impairment in connection with property, plant and equipment and intangible assets. Depreciation of finance lease assets is also included.

Foreign exchange result:This line of the cash flow is normally only for GFC purposes. On an affiliate level this amount represents the unrealized exchange gains and losses incurred though revaluing assets and liabilities stated in foreign currency. Only in cases that an affiliate has bank accounts in a currency other than the local currency in the cash fund, does an exchange rate adjustment need to be shown here (see 5.5. “effect of exchange rates on cash and cash equivalents”). On a Group level, foreign exchange results within the equity will be shown here as well as other exchange effects (e.g. for property, plant and equipment).

Gain / loss on sale of non-current assets:Self-explanatory. Includes the gain / loss on sale for all positions of the balance sheet (see attachment 1) referring to non-current assets (lines 1 to 7) except the deferred tax assets. For a more detailed analysis which items are included please see the Chart of Accounts.

Gain / loss on sale of marketable securities:Self-explanatory. Includes the gain / loss on sale for all positions of the balance sheet referring to line 11 of the balance sheet (marketable securities (see attachment 1)). For a more detailed analysis which items are included please see the Chart of Accounts.

Investment income:Includes income from investments (# 76210 - # 76265) and interest and similar income (# 76710 - # 76755) which are part of the financial result regardless of whether they were paid in cash or not. The algebraic sign for the cash flow is a minus.

Interest expense:Includes all interest expenses which are part of the financial result (# 77710 - # 77755) regardless of whether they were paid in cash or not. The algebraic sign for the cash flow is a plus.

Changes in inventories:Self-explanatory. Basically includes the change in line 9 of the balance sheet (see attachment 1).

http://dict.leo.org/se?p=/Mn4k.&search=sign

http://dict.leo.org/se?p=/Mn4k.&search=algebraic



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Changes in trade receivables and other assets:Self-explanatory. Basically includes the changes in lines 10 and 13 of the balance sheet (see attachment 1).

Changes in provisions:Self-explanatory. Basically includes the changes in lines 26 and 31 of the balance sheet (see attachment 1). The interest part of discounted amounts within the long-term provisions has to be considered.

Changes in trade payables and other liabilities:Self-explanatory. Basically includes the changes in lines 28 and 33 of the balance sheet (see attachment 1).

Interest paid:Includes that part of interest expense which is paid by the company in cash. The algebraic sign for the cash flow is a minus. The counterpart is the line interest expense. If you add these two lines together you receive that part of interest expense which is cash-irrelevant and shown within the change of position in the balance sheet other than cash.

Income tax paid:Includes only tax expenses which were paid in cash. Any other parts of the taxes on income can be shown as changes of certain balance sheet positions (e. g. DTA 2004: 500 LC; DTA 2005: 700 LC; change: +200 cash-irrelevant and part of the taxes on income).



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5.3. CASH FLOW FROM INVESTING ACTIVITIESThe cash flow from investing activities includes the following lines:

Purchase of property, plant and equipment:Self-explanatory. Includes any capital expenditure of property, plant and equipment except additions in finance lease assets. If new finance lease contracts are signed the increase of property, plant and equipment is netted against the increase of finance liabilities because this business transaction does not concern the cash flow.

Purchase of intangible assets:Self-explanatory. Includes cash payments to acquire intangible assets. In practice, the additions to EDP software and / or patents and licenses have to be shown here. Additions to other intangible assets are rare.

Purchase of investments and marketable securities:Self-explanatory. Includes cash payments to acquire long-term investments (see more detailed structure within the chart of account) and short-term marketable securities.

Proceeds from the sale of intangible assets and property, plant and equipment:Includes the amounts a company receives in cash for the sale of intangible assets and property, plant and equipment. Has to be seen in connection with the line gain / loss on sale of non-current assets.

Proceeds from the sale of investments and marketable securities:Includes the amounts a company receives in cash in consideration for investments and marketable securities. Has to be seen in connection with the line gain / loss on sale of marketable securities.

Interest received:Includes that part of interest income which is paid to the company by cash. The algebraic sign for the cash flow is a plus. The counterpart is the line investment income. If you add these two lines together you receive that part of interest income which is cash-irrelevant and shown within the change of a position of the balance sheet.

Dividends received:Only relevant for WAG. Includes dividends received from the affiliates.



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5.4. CASH FLOW FROM FINANCING ACTIVITIESThe cash flow from financing activities includes the following lines:

Proceeds from issue of share capital:Includes the proceeds a company receives from shareholders for an increase in equity capital.

Dividends paid:Dividends which are paid from the affiliate to the parent company WAG or from the parent company to the owners have to be shown here (except those dividends paid to minority shareholders).

Dividends paid to minority shareholders:See dividends paid, but only for minority shareholders. Not relevant for WAG affiliates.

Proceeds from long-term borrowings:The borrowing of money from a bank should be shown here. It includes the amount which was paid out. Please be aware of the fact that changes in bank overdrafts in context with current bank accounts are part of the cash funds.

Repayment of long-term borrowings:Self-explanatory, see “Proceeds from long-term borrowings”. Please be aware of the fact that the interest part is not included here.

Payment of finance lease liabilities:Self-explanatory. Please be aware of the fact that the interest part is not included. If new finance lease contracts are entered, the increase of finance liabilities is netted against the increase of property, plant and equipment because this business transaction does not concern the cash flow.

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5.5. DEFINITION OF CASH FUNDSCash funds means cash and cash equivalents and is defined as follows:

Cash:Cash comprises cash on hand and demand deposits.

Cash equivalents:Cash equivalents are short-term, highly liquid investments that are easily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of three months or less from the date of acquisition. If bank overdrafts which are repayable on demand form an integral part of an enterprise’s cash management, they are included as a component of cash and cash equivalents. A characteristic of such banking arrangements is that the bank balance often fluctuates from being positive to overdrawn (e.g. BMG accounts and other current bank accounts).

Effect of exchange rates on cash and cash equivalents:This line of the cash flow is normally only for GFC purposes. On a local balance sheet level it is only rarely applicable. Only in cases that an affiliate has bank accounts in a currency other than the local currency in its cash funds does an exchange rate adjustment have to be shown in this line of the cash flow.

Example:In 2004, WAG has the following bank accounts (maturity under three months):1.000 Euros 1.000 €2.000 US-Dollars converted at the exchange rate 1,0 2.000 €Cash fund at the end of 2004 3.000 €

In 2005, the amounts are the same but the exchange rate has changed to 1,5:1.000 Euros 1.000 €2.000 US-Dollars converted at the exchange rate 1,5 3.000 €Cash fund at the end of 2005 4.000 €

As a consequence, 1.000 Euros have to be shown as effect of exchange rates on cash and cash equivalents.

Please inform GFC if you think it is necessary to fill out this line of the cash flow.

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5.6. Special examples

The presentation of a finance lease contract for a vehicle in the cash flow

At the period of conclusion of a contract, you show a balance sheet entry for a finance lease vehicle and a finance liability of the same amount. Normally, this change would affect the lines “purchase of property, plant and equipment” and “proceeds from long-term borrowings”. But in this case, you do not pay any cash. Therefore, this business transaction is not relevant for the cash flow. Increase of property, plant and equipment zeroes out against increase of long-term borrowings.

In the following periods, the depreciation of the vehicle has to be shown under “depreciation and amortization.” The leasing payment includes two parts:

a) the (re)payment of the finance lease liability which has to be shown in the corresponding line in the cash flow from financing activities; and

b) the interest which has to be shown as interest expense (+) as well as interest paid (-). This procedure may appear strange but it specifies the part of the interest expenses which was paid by cash.

The presentation of the tax relevant positions

The tax relevant positions can be separated into two parts: those related to deferred income taxes those related to current income taxes

All deferred tax positions are cash irrelevant (#08610 - #08630; # 30410 - # 30420; # 79330 - # 79335). That means that changes in deferred tax assets and liabilities from one reporting period to the next are not part of the cash flow. Increases and decreases of the positions in the balance sheet are explicitly excluded from the lines of the cash flow from operating activities. Since only the income tax paid is part of the operating cash flow section, the deferred tax effect is not considered.

All current income tax positions have to be checked whether income tax was paid by cash or not (therefore the differentiation between “paid” and “accrued”).

The presentation of the purchase and sale of a vehicle within one period (e.g. business year)

Purchase (say 1.000 LC) of the vehicle should be shown under “purchase of property, plant and equipment” in the section cash flow from investing activities.

Depreciation (say 200 LC) of the vehicle within the business year should be shown under “depreciation and amortization” in the section cash flow from operating activities.

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Sale of the vehicle (say 900 LC) should be shown under “proceeds from sale of property, plant and equipment” in the section cash flow from investing activities.

Gain on sale of the vehicle (100 LC = 900 LC proceeds minus 800 LC carrying amount) should be shown under “gain on sale of non-current assets” in the section cash flow from operating activities.

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Changes in equityDate:

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6. Changes in Equity

6.1. PRESENTATION OF CHANGES IN EQUITY6.1.1. Elements

The elements of the statement of changes in equity are those described in section 3.4.16. of the accounting manual. For further explanations please, see paragraphs 6.2. to 6.10.

6.1.2. GFC standard formThe GFC standard form (see attachment 4) is the one and only form which has to be used for monthly, quarterly and annually reporting to GFC. Please be aware of the fact that for monthly and quarterly reporting, the corresponding period of the prior business year has to be shown (see example 3). If you think there is a need to change this standard form please inform GFC. We will provide you with possible changes.

Please also be aware that the sum of the accounts included in the statement of changes in equity has to correspond with the figures in the balance sheet. Please check this for all reporting.

6.2. SHARE CAPITALShare capital is the proportion of a company's capital which derives from the issue of ordinary shares and preference shares. Share capital can increase over the course of time by a capital increase from the company’s own resources or an issuance of shares. An affiliate’s current share capital is confirmed in the commercial register. Because share capital is originally only used in connection with corporations, the following “synonyms” are also to be shown under share capital:

Share capital Issued capital Subscribed capital Common stock Capital stock Paid-in capital as well as additional paid-in capital

Share capital includes the following accounts:

# name description20210 Share capital See 3.4.16.1.

6.3. CAPITAL RESERVECapital reserve is the amount over the nominal value when issuing shares or any additional payments by the owners of a company with or without the grant of an advantage in connection with their shares.

Capital reserve includes the following accounts:

# name description24010 Capital reserve See 3.4.16.2.

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24020 Goodwill offset See 3.4.16.2.

6.4. REVENUE RESERVESRevenue reserves may include only those amounts which are or were part of the net profit of the current year / retained earnings of prior years. This also includes reserves which have to be formed according to legal or statutory requirements.

Revenue reserves include the following accounts:

# name description26110 Legal reserve See 3.4.16.3.26310 Statutory reserve See 3.4.16.3.26410 Other revenue reserves See 3.4.16.3.26420 Adjustments on untaxed special

reserveSee 3.4.16.3.

6.5. REVALUATION SURPLUSRevaluation surplus is not to be shown in the statement of changes in equity at all. It is COMPANY policy that the property, plant and equipment is NOT to be “revaluated” according to IAS 16. Therefore, there is no relevance for the whole COMPANY Group.

6.6. FAIR VALUE RESERVEFair value reserve includes gains or losses on hedging or any other financial instruments on a net of tax basis which shall be recognized directly in equity according to IAS 39 (e.g. gain or loss on a cash flow hedge).

Fair value reserve includes the following account:

# name description26800 Fair value reserve See 3.4.16.5.

6.7. EXCHANGE DIFFERENCESThis part of the statement of changes in equity is only for GFC purposes. It includes the exchange differences out of the consolidation which are caused by the following aspects:

Difference between average exchange rate for the income statement and the balance-sheet-date exchange rate for the assets and liabilities

Difference between historical exchange rate at first-time-consolidation date and balance-sheet-date exchange rate for the equity.

Changes in exchange rates for currency hedges or similar business transactions are not to be shown here.

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Exchange differences includes the following accounts:

# name description26960 Foreign exchange differences –

net profit for the yearSee 3.4.16.6.

26970 Foreign exchange differences – rest of equity

See 3.4.16.6.

26980 Foreign exchange differences - others

See 3.4.16.6.

6.8. OTHER NEUTRAL CHANGESOther neutral changes include any other business transactions which shall be recognized directly in equity except fair value reserve and exchange differences.

Other neutral changes include the following accounts:

# name description27110 Other neutral changes See 3.4.16.7.

6.9. RETAINED EARNINGSRetained earnings include the profit / loss of the current year and the prior years. Current and prior years have to be shown separately.

Retained earnings include the following accounts:

# name description28110 Retained earnings prior years See 3.4.16.8.28220 Retained earnings – dividends See 3.4.16.8.28230 Retained earnings – equity

consolidationsSee 3.4.16.8.

28240 Retained earnings – Group consolidation

See 3.4.16.8.

29110 Net profit / loss of the year See 3.4.16.8.

6.10. TREASURY SHARESTreasury shares (sometimes also called “own shares”) are the company’s own equity instruments. They shall be deducted from equity and their amount has to be disclosed separately. At the moment, treasury shares are only relevant for WAG.

Treasury shares include the following accounts:

# name description27500 Treasury shares See 3.4.16.9.

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6.11. Examples

To give you an overview of how to handle the most relevant business transactions in relation to changes in equity, examples have been included below. Please be aware that not all parts of the statement of changes in equity statement are included in these examples (see attachment 4).

Example 1: Period to be shown in the statement: business years 2004 and 2005 Profit for the year 2004 150 LC Profit for the year 2005 200 LC No other occurrences

Example 2: Period to be shown in the statement: business years 2004 and 2005 Dividends paid in 2005 100 LC Profit for the year 2004 150 LC Profit for the year 2005 200 LC No other occurrences

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Example 3: Period to be shown in the statement: first quarter of 2004 and 2005 Profit for the 1.quarter 2004 50 LC Profit for the 1.quarter 2005 50 LC No other occurrences

Example 4:

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Period to be shown in the statement: business years 2004 and 2005 Part of retained earnings 2005 is

used for share capital increase 100 LC Profit for the year 2004 150 LC Profit for the year 2005 200 LC No other occurrences

Example 5: Period to be shown in the statement: business years 2004 and 2005 Fair value reserve (caused by new cash

Flow hedge, net of tax) at year-end 04 50 LC Fair value reserve (caused by cash

Flow hedge, net of tax) at year-end 05 70 LC Profit for the year 2004 150 LC Profit for the year 2005 200 LC No other occurrences

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Example 6: Period to be shown in the statement: business years 2004 and 2005 In 2005 the company buys treasury

shares for its own purposes 100 LC Profit for the year 2004 150 LC Profit for the year 2005 200 LC No other occurrences

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Example 7: Period to be shown in the statement: business years 2004 and 2005 Minority status at the beginning 2004 50 LC In 2004 the company shows profits

which belong to minorities 10 LC In 2005 the company shows profits

which belong to minorities 20 LC Profit for the year 2004 150 LC Profit for the year 2005 200 LC No other occurrences

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AttachmentsDate:

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AttachmentsBasic reporting documents

balance sheet 1 income statement 2 statement of changes in equity 3 cash flow 4

Group Chart of Accounts 5Leasing decider 6Calculation example leasing 7Taxes 8Sales report structure 9Provisions 10

List of abbreviations