Merck 2008 Annual Report Download - page 89

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Accounting policies
The preparation of the consolidated financial statements in accordance with IFRS
requires the use of estimates when reporting and measuring assets and liabilities.
These are reviewed on an ongoing basis. Changes are recorded in the reporting period
or in future periods. Assumptions and estimates are made in particular in connection
with the measurement of intangible assets and provisions. If these do not prove to be
accurate, this may give rise to the need for write-downs, which could materially
impact the consolidated result. The material assumptions and parameters for the esti-
mates made are disclosed in the Notes.
Consolidation methods
The consolidated financial statements are based on the single-entity financial state-
ments of the consolidated companies as of December 31, 2008, which were prepared
applying consistent accounting polices in accordance with IFRS.
Acquisitions are accounted for using the purchase method in accordance with
IFRS 3. Subsidiaries consolidated for the first time in the reporting period are mea-
sured at the carrying values at the time of acquisition on the basis of corresponding
annual and interim financial statements. Resulting differences are recognized as
assets and liabilities to the extent that their fair values differ from the values actually
carried in the financial statements. Any remaining difference is recognized as good-
will within intangible assets, and is subjected to a regular impairment test.
Intragroup sales, expenses and income, as well as all receivables and payables
between the consolidated companies, were eliminated. The effects of intragroup deliv-
eries reported under non-current assets and inventories have been adjusted by elimi-
nating any intragroup profits.
Currency translation
The functional currency concept applies to the translation of financial statements of
consolidated companies prepared in foreign currencies. The companies of the Merck
Group conduct their operations independently. The functional currency of these com-
panies is the respective local currency. In accordance with IAS 21 "The Effects of
Changes in Foreign Exchange Rates", assets and liabilities are translated at the closing
rate, and income and expenses are translated at weighted average annual rates to
euros, the reporting currency. If Group companies are deconsolidated, existing cur-
rency differences are reversed and recognized in income.
84 | Merck Annual Report 2008