BMW 2006 Annual Report Download - page 76

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interest income earned by group financing com-
panies.
If the sale of products includes a determinable
amount for subsequent services (“multiple-compo-
nent contracts”), the related revenues are deferred
and recognised as income over the period of the
contract. Amounts are normally recognised as in-
come by reference to the expected pattern of related
expenditure.
Profits arising on the sale of vehicles for which a
group company retains a repurchase commitment
(buy-back contracts) are not recognised until such
profits have been realised. The vehicles are included
in inventories and stated at cost.
Cost of sales comprises the cost of products
sold and the acquisition cost of purchased goods
sold. It includes all directly attributable material and
production costs and production overheads, includ-
ing depreciation/amortisation of property, plant and
equipment and 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 on direct
sales. Expenses which are directly attributable to
financial services business and interest expense 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 recognised
until there is reasonable assurance that the condi-
tions 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 ac-
cordance with IAS 33 (Earnings per Share). Undiluted
earnings per share are calculated for common and
preferred stock by dividing the net profit after mi-
nority interest, as attributable to each category of
stock, by the average number of outstanding shares.
The net profit is accordingly allocated to the differ-
ent categories of stock. The portion of the group net
profit for the year which is not being distributed is
allocated to each category of stock based on the
number of outstanding shares. Profits available for
distribution are determined directly on the basis of
the dividend resolutions passed for common and
preferred stock. Diluted earnings 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
acquisition and/or manufacturing cost and, to the
extent that they have a finite useful life, 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. Intangible assets with finite useful
lives are assessed regularly for recoverability and
their carrying amounts are reduced to the recover-
able amount in the event of impairment.
Development costs for vehicle and engine
projects are capitalised at production cost, to the
extent that costs can be allocated reliably and both
technical feasibility and successful marketing are
assured. It must also be probable that the develop-
ment expenditure will generate future economic
benefits. Capitalised development costs comprise
all expenditure that can be attributed directly to the
development process, including development-re-
lated 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 and are meas-
ured at acquisition or manufacturing cost. Deprecia-
ble assets are reduced by 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. Compo-
nents of items of property, plant and equipment
with different useful lives are depreciated separately.