BMW 2012 Annual Report Download - page 95

95 GROUP FINANCIAL STATEMENTS
Assumptions, judgements and estimations
The preparation of the Group Financial Statements in
accordance with IFRSs requires management to make
certain assumptions and judgements and to use esti-
mations
that can affect the reported amounts of assets
and liabilities, revenues and expenses and contingent
liabilities. Judgements have to be made in particular
when assessing whether the risks and rewards inciden-
tal to ownership of a leased asset have been transferred
and, hence, the classification of leasing arrangements.
Major items requiring assumptions and estimations are
described below. The assumptions used are continu-
ously checked for their validity. Actual amounts could
differ from the assumptions and estimations used if
business conditions develop differently to the Group’s
expectations.
Estimations are required to assess the recoverability of
a cash-generating unit (CGU). If the recoverability of an
asset is being tested at the level of a CGU, assumptions
must be made with regard to future cash inflows and out-
flows, involving in particular an assessment of the
fore-
casting period to be used and of developments after
that period. Forecasting assumptions are determined by
management in order to calculate future cash flows, in-
cluding assumptions about future macroeconomic de-
velopments, market developments relevant for the auto-
motive sector and the legal environment.
The BMW Group regularly checks the recoverability of
its leased products. One of the main assumptions re-
quired for leased products relates to their residual value
since this represents a significant portion of future
cash inflows. In order to estimate the level of prices
likely to be achieved in the future, the BMW Group in-
corporates
internally available historical data, current
market data and forecasts of external institutions into its
calculations. Internal back-testing is applied to validate
liabilities which are held for trading. Liabilities from
finance leases are stated at the present value of the
the estimations made. Further information is provided
in note 23.
The bad debt risk relating to receivables from sales
financing is assessed regularly by the BMW Group. For
these purposes, the main factors taken into
considera-
tion are past experience, current market data (such as
the level of financing business arrears), rating classes
and scoring information. Further information is provided
in note 25.
The disposal of an asset or of a disposal group pursuant
to IFRS 5 is considered to be highly probable by the
BMW Group if management is committed to a sales plan,
an active programme to locate a buyer has begun, the
price offered is reasonable in relation to the fair value
of the asset / disposal group concerned and it is expected
at the date of classification that the final negotiations
with the buyer and completion of the sale will take place
within one year. Further details can be found in note 32.
Estimations are required for the purposes of recognising
and measuring provisions for guarantee and warranty
obligations. In addition to statutorily prescribed manu-
facturer warranties, the BMW Group also offers various
categories of guarantee depending on the product and
sales market concerned. Provisions for guarantee and
warranty obligations are recognised at the beginning of
a lease or sales contract or when a new category of
guarantee is introduced. Various factors are taken into
consideration when estimating the level of the provision,
including past experience with the nature and amount
of claims as well as an assessment of future potential
repair and maintenance costs. Further information is
provided in note 35.
In the event of involvement in legal proceedings or when
claims are brought against a Group entity, provisions
future lease payments and disclosed under other finan-
cial liabilities.
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