BMW 2014 Annual Report Download - page 107

107 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 estima-
tions that can affect the reported amounts of assets and
liabilities, revenues and expenses and contingent lia-
bilities. Major items requiring assumptions and estima-
tions are described below. The assumptions used are
continuously 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. For the purposes of determining future cash
inflows and outflows, management applies forecasting
assumptions which are continually brought up to date
and regularly compared with external sources of in-
formation. The assumptions used take account in par-
ticular of expectations of the profitability of the product
Remeasurements of the net defined benefit liability
for pension plans are recognised, net of deferred tax,
directly in equity (revenue reserves).
Net interest expense on the net defined benefit liability
and / or net interest income on the net defined benefit
asset are presented separately within the financial result.
All other costs relating to allocations to pension pro-
visions are allocated to costs by function in the income
statement.
Other provisions are recognised when the BMW Group
has a present obligation (legal or constructive) arising
from past events, the settlement of which is probable
and when a reliable estimate can be made of the amount
of the obligation. Measurement of provisions is based
on the best estimate of the expenditure required to
settle the present obligation at the end of the reporting
portfolio, future market share developments, macro-
economic developments (such as currency, interest rate
and raw materials) as well as the legal environment and
past experience.
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 incorpo-
rates internally available historical data, current market
data and forecasts of external institutions into its cal-
culations. Internal back-testing is applied to validate the
estimations made. Further information is provided in
note 25.
The bad debt risk relating to receivables from sales financ-
ing is assessed regularly by the BMW Group. For these
purposes, the main factors taken into consideration 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 28.
period. Non-current provisions with a remaining period
of more than one year are discounted to the present
value of the expenditures expected to settle the obligation
at the end of the reporting period.
Financial liabilities are measured on first-time recogni-
tion at cost which corresponds to the fair value of the
consideration given. Transaction costs are also taken
into account except for financial liabilities allocated to
the category “financial liabilities measured at fair value
through profit or loss”. Subsequent to initial
recogni-
tion, liabilities are – with the exception of derivative
finan cial instruments – measured at amortised cost
using the effective interest method. The BMW Group
has no liabilities which are held for trading. Liabilities
from finance leases are stated at the present value of
the future lease payments and disclosed under other
finan cial liabilities.
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