Merck 2008 Annual Report Download - page 91
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With respect to this situation, an assessment is required as to whether these upfront or
milestone payments represent compensation for services performed (ongoing research
and development expense) or whether the payments represent the acquisition of a right
which has to be capitalized. Reimbursements for R&D are offset against research and
development costs.
Cash and cash equivalents
Cash and cash equivalents include cash and monetary deposits with a maturity of
90 days from the date of acquisition.
Receivables and other assets
Receivables and other assets are carried at amortized cost. Write-downs are charged
for default risks unless these are covered by insurance. Non-interest-bearing or low-
interest non-current receivables are carried at their present value. Derivative financial
assets are reported at fair value (see also ī£Financial Instrumentsī¤).
Inventories
Inventories are carried at cost using the weighted average method. In accordance with
IAS 2, in addition to directly attributable unit costs, manufacturing costs also include
overheads attributable to the production process, including an appropriate share
of depreciation charges on production facilities, which are determined on the basis of
normal capacity utilization of the production facilities. Financing costs are not
in cluded.
Inventories are written down if the net realizable value is lower than the acquisition
or manu facturing cost carried in the balance sheet.
Intangible assets
Acquired intangible assets are recognized at cost and are classified as assets with
finite and indefinite useful lives. Intangible assets acquired within the scope of business
combinations are recognized at fair value on the date of acquisition. If such assets
have not yet reached market maturity, they are disclosed as intangible assets with
indefinite useful lives and are not amortized.
Assets with a finite useful life are depreciated using the straight- line method. The
useful lives of acquired concessions, property rights, licenses, patents, brand names,
trademarks and software are between 3 and 15 years. Amortization of intangible
assets ā except for software ā are disclosed separately before the operating result. This
item primarily comprises amortization in connection with the allocation of the Serono
purchase price, but also to a lesser extent amortization of other intangible assets.
Depending on the type of asset concerned, other types of depreciation are allocated to
the corresponding operating expense line in the income statement. If there are any
indications of a decline in value, an impairment test is performed, and if necessary,
impairment losses are recognized.
86 | Merck Annual Report 2008