BMW 2004 Annual Report Download - page 62

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preciation of property, plant and equipment and
amortisation of intangible assets relating to produc-
tion and write-downs on inventories. Cost of sales
also includes freight and insurance costs relating
to deliveries to dealers and agency fees in the case
of direct sales. Expenses which are directly attribut-
able to financial services business and interest ex-
pense from refinancing the entire financial services
business, including the expense of risk provisions
and write-downs, are reported in cost of sales. Cost
of sales for the financial operations sub-group also
includes the interest expense of group financing
companies.
Research costs and development costs
which are not capitalised are recognised as an
expense when incurred.
In accordance with IAS 20 (Accounting for
Government Grants and Disclosure of Government
Assistance) public sector grants are not recog-
nised until there is reasonable assurance that the
conditions attaching to them have been complied
with and the grants will be received. They are
recognised as income over the periods necessary
to match them with the related costs which they are
intended to compensate.
Basic Earnings per Share are computed in
accordance with IAS 33 (Earnings per Share). Undi-
luted earnings per share are calculated for common
and preferred stock shares by dividing the net in-
come attributable to each category of stock – net
of minority interests – by the average number of out-
standing shares. The net profit is accordingly allo-
cated to the different categories of stock. The por-
tion of the group net income for the year which is
not being distributed is allocated to each category
of stock based on the number of outstanding shares.
Net profit available for distribution is allocated in
accordance with the actual payment. Diluted earn-
ings per share would have to be disclosed separately.
Purchased and internally-generated intangible
assets are recognised as assets in accordance with
IAS 38 (Intangible Assets), where it is probable that
the use of the asset will generate future economic
benefits and where the costs of the asset can be
determined reliably. Such assets are measured at
purchase and manufacturing cost and amortised
on a straight-line basis over their estimated useful
lives. With the exception of capitalised development
costs, intangible assets are generally amortised over
their estimated useful lives of between three and
five years.
Development costs for vehicle and engine
projects are capitalised at cost, to the extent that
costs can be allocated reliably and the technical
feasibility and successful marketing are assured.
It must also be probable that the development ex-
penditure will generate future economic benefits.
Capitalised development costs comprise all expen-
diture that can be attributed directly to the develop-
ment process and development-related overheads.
Capitalised development costs are amortised on a
systematic basis following the commencement of
production over the estimated product life which is
generally seven years.
All items of property, plant and equipment
are considered to have finite useful lives. They are
stated at acquisition or manufacturing cost less
systematic depreciation based on the estimated
useful lives of the assets. Depreciation on property,
plant and equipment reflects the pattern of their
usage and is generally computed using the straight-
line method.