Audi 2013 Annual Report Download - page 235

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
RECOGNITION AND MEASUREMENT PRINCIPLES
CONSOLIDATED FINANCIAL STATEMENTS
232
B
Research costs are treated as current expenses in accordance
with IAS 38. The development expenditure for products going
into series production is recognized as an intangible asset,
provided that the sale of these products is likely to bring eco-
nomic benefit to the Audi Group. If the conditions stated in
IAS 38 for capitalization are not met, the costs are expensed
in the Income Statement in the year in which they occur.
Capitalized development costs encompass all direct and indirect
costs that can be directly allocated to the development process.
No interest was capitalized in relation to borrowing costs due
to the fact that there was no significant borrowed capital as
defined in the criteria of IAS 23 given that the Audi Group main-
tains sufficient levels of net liquidity at all times. Capitalized
development costs are amortized on a straight-line basis from
the start of production over the anticipated model life of the
developed products.
Depreciation, allocated to the corresponding functional areas,
is primarily based on the following useful lives:
Useful life
similar rights and assets 3–15 years
of which software 3 years
of which customer base 2–8 years
Capitalized development costs 5–9 years
/ PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are measured at cost of pur-
chase or construction, with straight-line depreciation applied
pro rata temporis over the expected useful life.
The cost of purchase includes the purchase price, ancillary
costs and cost reductions.
In the case of self-constructed fixed assets, the cost of construc-
tion includes both the directly attributable cost of materials and
cost of labor as well as indirect materials and indirect labor
costs that must be capitalized, including pro rata depreciation.
No interest was capitalized in relation to borrowing costs due
to the fact that there was no significant borrowed capital as
defined in the criteria of IAS 23 given that the Audi Group
maintains sufficient levels of net liquidity at all times.
Depreciation is generally based on the following useful lives,
which are reassessed yearly:
Useful life
Buildings 14–50 years
Land improvements 10–33 years
Plant and machinery 6–12 years
Plant and office equipment including special tools 3–15 years
Property, plant and equipment used on the basis of lease agree-
ments is capitalized in the Balance Sheet if the conditions of a
finance lease are met in accordance with IAS 17 (in other words,
if the significant risks and rewards which result from its use
have passed to the lessee). Capitalization is performed at the
time of the agreement at fair value or the lower present value
of the minimum lease payments. The straight-line depreciation
method is based on the shorter of economically useful life or
term of lease contract.
Where Group companies have entered into operating lease
agreements as the lessee, in other words if not all risks and
rewards associated with title have passed to them, leasing
installments and rents are expensed directly in the Income
Statement.
/ LEASING AND RENTAL ASSETS
Vehicles leased by Audi Group companies, in the case of opera-
ting lease agreements, are capitalized at cost of goods sold and
depreciated to the calculated residual value on a straight-line
basis over the contractual term. Impairment losses and adjust-
ments to depreciation rates are made to take account of value
reductions calculated on the basis of impairment testing within
the scope of IAS 36. Based on local factors and historical values
from used car marketing, updated internal and external infor-
mation on residual value developments is incorporated into the
residual value forecasts on an ongoing basis.
/ INVESTMENT PROPERTY
Land or buildings held with the intention of generating rental
income (investment property) are reported in the Balance Sheet
at amortized cost. The amortization periods applied are as a
general rule those applied to property, plant and equipment
used by the Group itself. In the case of measurement at amor-
tized costs, the fair values calculated as a general rule using
internal calculations based on the discounted cash flow method
are also to be stated.