Merck 2014 Annual Report Download - page 195

190 CONSOLIDATED FINANCIAL STATEMENTS → Notes to the Group accounts
(15) OTHER NON-FINANCIAL ASSETS AND
LIABILITIES
Other non-financial assets are carried at amortized cost. Allowances
are recognized for any credit risks. Long-term non-interest-bearing
and low-interest receivables are carried at their present value. Other
non-financial liabilities are carried at the amount to be repaid.
(16) INVENTORIES
Inventories are carried at the lower of cost or net realizable value.
When determining cost, the “first-in, first-out” ( FIFO ) and weighted
average cost formulas are used. In addition to directly attributable
unit costs, manufacturing costs also include overheads attribut-
able to the production process, which are determined on the basis
of normal capacity utilization of the production facilities.
Inventories are written down if the net realizable value is lower
than the acquisition or manufacturing cost carried in the balance
sheet.
Since the products are not manufactured within the scope of
long-term production processes, the manufacturing cost does not
include any borrowing cost.
Inventory prepayments are recorded under other current assets.
(17) INTANGIBLE ASSETS
Acquired intangible assets are recognized at cost and are classified
as assets with finite and indefinite useful lives. Self-developed
intangible assets are only capitalized if the requirements specified
by IAS38 have been met. Intangible assets acquired in the course
of business combinations are recognized at fair value on the
acquisition date.
Intangible assets with indefinite useful lives
Intangible assets with indefinite useful lives are not amortized;
however they are tested for impairment when a triggering event
arises or at least once a year. Here, the respective carrying amounts
are compared with the recoverable amount of the cash-generating
unit and impairments are recognized as required. Impairment
losses recognized on indefinite-life intangible assets other than
goodwill are reversed if the original reasons for impairment no
longer apply.
Goodwill is allocated to cash-generating units and tested for
impairment either annually or if there are indications of impair-
ment. A cash-generating unit is a division as presented in the
Segment Reporting. The carrying amounts of the cash-generating
units are compared with their recoverable amounts and impair-
ment losses are recognized where the recoverable amount is lower
than the carrying amount. The recoverable amount of a cash-
generating unit is determined as the higher of fair value less costs
to sell and value in use estimated using the discounted cash flow
method. When testing for potential goodwill impairments, the
Group determines the recoverable amount by discounting expected
cash flows and therefore uses the value-in-use method.
Intangible assets with finite useful lives
Intangible assets with a finite useful life are amortized using the
straight-line method. The useful lives of marketing authorizations,
acquired patents, licenses and similar rights, brand names, trade-
marks and software are between 3 and 19 years. Amortization of
intangible assets and software is allocated to the functional costs
in the income statement. An impairment test is performed if there
are indications of impairment. Impairment losses are determined
using the same methodology as for indefinite-life intangible
assets. Impairment losses are reversed if the original reasons for
impairment no longer apply.