Merck 2014 Annual Report Download - page 192

187CONSOLIDATED FINANCIAL STATEMENTS → Notes to the Group accounts
(9) CURRENCY TRANSLATION
The functional currency concept applies to the translation of
financial statements of consolidated companies prepared in foreign
currencies. The subsidiaries of the Group generally conduct their
operations independently. The functional currency of these com-
panies is normally the respective local currency. Assets and liabil-
ities are measured at the closing rate, and income and expenses
are measured at weighted average annual rates in euros, the
reporting currency. Any currency translation differences arising
during consolidation of Group companies are taken directly to
equity. If Group companies are deconsolidated, existing currency
differences are reversed and reclassified to profit or loss. The local
currency is not the functional currency at only a few subsidiaries.
When the financial statements of consolidated companies are
prepared, business transactions that are conducted in currencies
other than the functional currency are recorded using the current
exchange rate on the date of the transaction. Foreign currency
monetary items (cash and cash equivalents, receivables and pay-
ables) in the year-end financial statements of the consolidated
companies prepared in the functional currency are translated at
the respective closing rates. Exchange differences from the trans-
lation of monetary items are recognized in the income statement
with the exception of net investments in a foreign operation.
Hedged items are likewise carried at the closing rate. The resulting
gains or losses are eliminated in the income statement against
offsetting amounts from the fair value measurement of deriva-
tives.
Currency translation was based on the following key exchange
rates:
Average annual rate Closing rate
€ 1 = 2014 2013 Dec. 31, 2014 Dec. 31, 2013
British pound (GBP) 0.805 0.848 0.781 0.834
Chinese renminbi (CNY) 8.167 8.178 7.534 8.345
Japanese yen (JPY) 140.594 129.016 145.392 144.729
Swiss franc (CHF) 1.214 1.228 1.203 1.227
Taiwan dollar (TWD) 40.172 39.471 38.448 41.128
U.S. dollar (USD) 1.325 1.330 1.215 1.379
(10) RECOGNITION OF SALES AND
REVENUES
Sales are recognized net of sales-related taxes as well as sales
deductions. They are recognized once the goods have been deliv-
ered or the services have been rendered, the significant risks and
rewards of ownership have been transferred to the purchaser, the
amount of revenue can be measured reliably, and it is probable
that the economic benefits will flow to the entity. When sales are
recognized, estimated amounts are taken into account for expected
sales deductions, for example rebates, discounts and returns.
In addition to revenue from the sale of goods, sales also include
revenue from services, but the volume involved is insignificant.
Long-term, customer-specific manufacturing contracts do not exist.
Depending on the substance of the relevant agreements, roy-
alty, license and commission income is recognized either immedi-
ately or is recognized when the contractual obligation is fulfilled.
Dividend income is recognized when the shareholders’ right to
receive the dividend is established. This is normally the date of the
dividend resolution. Interest income is recognized in the period in
which it is earned.