BMW 2004 Annual Report Download - page 60

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BMW Financial Services Korea Co., Ltd., Seoul,
BMW Leasing de Mexico S.A. de C.V., Mexico City,
axentiv AG, Darmstadt, arcensis GmbH, Stuttgart,
BMW España Finance S.L., Madrid, BMW Malta
Ltd., Valletta, and BMW Malta Finance Ltd., Valletta,
have all been consolidated for the first time.
Austin Rover International Services S.A.,
Lausanne, and Rover Service Center Corp., Tokyo,
are no longer included in the group reporting entity.
The equity of subsidiaries is consolidated in accor-
dance with IFRS 3 (Business Combinations), which
replaced IAS 22 with effect from 31 March 2004.
IFRS 3 requires that all business combinations are
accounted for using the purchase method, whereby
identifiable assets and liabilities acquired are meas-
ured initially at their fair value. The excess of the
Group’s interest in the net fair value of the identifiable
assets and liabilities acquired over cost is recognised
as goodwill and is subjected to a regular review for
possible impairment. Goodwill of euro 91million
which arose prior to 1 January 1995 remains netted
against reserves. In the event of impairment and
deconsolidation, goodwill that has been deducted
from equity is dealt with directly in equity in accor-
dance with the requirements of IFRS 3.80. Goodwill
arising between 1 January 1995 and the effective
date of IFRS 3 on 31 March 2004 and recognised
as an asset in the balance sheet was amortised up
The group reporting entity also changed by
comparison to the previous year as a result of the
first-time consolidation of seven special purpose
entities as well as the deconsolidation of two special
purpose entities and one trust.
The changes in the composition of the Group
do not have a material impact on the assets, lia-
bilities, financial position and earnings of the Group.
The financial statements of consolidated companies
which are drawn up in a foreign currency are trans-
lated using the functional currency concept (IAS 21:
The Effects of Changes in Foreign Exchange Rates)
and the foreign entity method. Since foreign sub-
sidiaries operate their businesses autonomously,
from a financial, economical and organisational point
of view, the functional currency of these companies
is identical to the local currency. Income and ex-
penses
of foreign subsidiaries are therefore translated
in the Group financial statements at the average ex-
change rate for the year, and assets and liabilities are
translated at the closing rate. Exchange differences
arising from the translation of shareholders’ equity
are offset directly against accumulated other equity.
Exchange differences arising from the use of different
to 31 December 2004; the amortisation expense in
2004 amounted to euro 5 million.
Receivables, liabilities, provisions, income and
expenses and profits between consolidated com-
panies (inter-group profits) are eliminated on con-
solidation.
Investments in other companies are accounted
for using the equity method, when significant influ-
ence can be exercised (IAS 28 Accounting for Invest-
ments in Associates). This is normally the case when
voting rights of between 20% and 50% are held
(associated companies). Under the equity method,
investments are measured at the group’s share of
equity taking account of fair value adjustments on
acquisition, based on the group’s shareholding. Any
difference between the cost of investment and the
group’s share of equity is accounted for in accordance
with the purchase method.
[4]Consolidation
principles
[3]Changes in the
reporting entity
[5]Foreign currency
translation