Merck 2014 Annual Report Download - page 191

186 CONSOLIDATED FINANCIAL STATEMENTS → Notes to the Group accounts
Provisions for pensions and other post-employment benefits
The Group maintains several defined benefit pension plans, par-
ticularly in Germany, Switzerland and the United Kingdom. The
determination of the present value of the obligation from these
defined benefit pension plans primarily requires estimates of the
discount rate, future salary increases, future pension increases and
future cost increases for medical care.
Detailed information on the existing pension obligations and
a sensitivity analysis of the parameters named above are provided
in Notes [22] and [49]. As of the reporting date, the amount
recorded on the balance sheet for provisions for pensions and
other post-employment benefits was € 1,820.1 million (2013:
€910.9 million). The present value of the defined benefit pension
obligation was €3,812.7 million as of December 31, 2014 (2013:
€2,736.8 million).
Income taxes
The calculation of the reported assets and liabilities from deferred
and current income taxes requires extensive discretionary judg-
ments, assumptions and estimates. Income tax liabilities were
€849.8 million as of December 31, 2014 (2013: €465.1 million).
The carrying amounts of deferred tax assets and liabilities amounted
to € 992.9 million and € 818.4 million, respectively, as of the
reporting date (2013: €736.4 million and €665.5 million, respec-
tively).
The recognized income tax liabilities and provisions are par-
tially based on estimates and interpretations of tax laws and
ordinances in different jurisdictions.
With regard to deferred tax items, there is a high degree of
uncertainty concerning the date on which an asset is realized or a
liability settled and concerning the tax rate applicable on this date.
This particularly relates to deferred tax liabilities recognized in the
context of the acquisitions of Serono SA, the Millipore Corporation
and AZ Electronic Materials S.A. The recognition of deferred tax
assets from loss carryforwards requires an estimate of the prob-
a bility of the future realizability of loss carryforwards. Factors
considered in this estimate are results history, results planning and
any tax planning strategy of the respective Group company.
Other judgments, assumptions and sources of estimation
uncertainty
The Group makes other judgments, assumptions and estimates in
the following areas:
→ Classification of financial assets and financial liabilities
→ Hedge accounting for cash flows from highly probable forecast
transactions and firm purchase commitments
→ Determination of the fair value of financial instruments clas-
sified as available-for-sale and of derivative financial instru-
ments
→ Determination of the fair value of the liability for share-based
compensation
→ Determination of the fair value of plan assets
(8) CONSOLIDATION METHODS
The consolidated financial statements are based on the single-
entity financial statements of the consolidated companies as of
the balance sheet date, which were prepared applying consistent
accounting policies in accordance with IFRS.
Acquisitions are accounted for using the purchase method in
accordance with IFRS3. Subsidiaries acquired and consolidated for
the first time were measured at the carrying values at the time of
acquisition on the basis of financial statements prepared for this
purpose. Differences resulting in this connection are recognized as
assets and liabilities to the extent that their fair values differ from
the values actually carried in the financial statements. Any remain-
ing – and usually positive – difference is recognized as goodwill
within intangible assets, and is subjected to an impairment test if
there are indications of impairment, or at least once a year.
In cases where a company was not acquired in full, non-con-
trolling interests are measured using the fair value of the propor-
tionate share of net assets. The option to measure non-controlling
interests at fair value (full goodwill method) was not utilized.
When additional shares in a non-controlling interest are ac-
quired, the purchase price amount that exceeds the carrying
amount of this interest is recognized immediately in equity.
IFRS11, which has been applicable since 2014, is applied for joint
arrangements. A joint arrangement exists when, on the basis of
a contractual arrangement, the Group and third parties jointly
control business activities. Joint control means that decisions
about the relevant activities require unanimous consent. Joint ar-
rangements are either joint operations or joint ventures. Revenues
and expenses as well as assets and liabilities from joint operations
are included in the consolidated financial statements on a pro rata
basis in accordance with the Group’s rights and obligations. By
contrast, interests in joint ventures as well as in material asso-
ci ates over which the Group has significant influence are included
in accordance with IAS28 using the equity method of accounting.
Intragroup sales, expenses and income, as well as all receiv-
ables and payables between the consolidated companies, were
eliminated. The effects of intragroup deliveries reported under
non-current assets and inventories were adjusted by eliminating
any intragroup profits. In accordance with IAS12, deferred taxes
are applied to these consolidation measures.