Porsche 2008 Annual Report Download - page 163

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Net realizable value is the estimated selling price in the ordinary course of business less the esti-
mated costs of completion and the estimated costs necessary to make the sale.
If the carrying amounts are no longer realizable due to a decrease in prices, inventories are written
down accordingly.
Inventories of similar nature are generally measured using the weighted average cost method.
Long-term development contracts
Future receivables from long-term development contracts are recognized according to their per-
centage of completion. The percentage of completion to be recognized per contract is calculated
by comparing the accumulated costs with the total costs expected (cost-to-cost method). If the
result of a development contract cannot be determined reliably, income is only recognized at the
amount of the contract costs incurred (zero profit method). If the total of accumulated contract
costs and reported profits exceeds advance payments received, the development contracts are
recognized as an asset as future receivables from long-term development contracts under trade
receivables. Any negative balance is reported under trade payables. The principle of measuring
assets at the lower of carrying amount and net realizable value is observed.
Financial instruments
According to IAS 39, a financial instrument is any contract that gives rise to a financial asset at
one entity and a financial liability or equity instrument at another entity. If the trade date of a finan-
cial asset differs from the settlement date, it is initially accounted for at the settlement date. Initial
measurement of a financial instrument is at cost including transaction costs. Subsequent measure-
ment of financial instruments is either at fair value or amortized cost.
With respect to measurement, IAS 39 distinguishes between the following categories of financial
assets:
– Financial assets at fair value through profit or loss (FVtPL) and held-for-trading (HfT)
– Held-to-maturity investments (HtM)
– Available-for-sale financial assets (AfS) and
– Loans and receivables (LaR).
By contrast, financial liabilities are divided into the two categories:
– Financial liabilities at fair value through profit or loss (FVtPL) and held-for-trading (HfT) and
– Financial liabilities measured at amortized cost (FLAC).
Depending on the category, measurement of financial instruments is either at fair value or
amortized cost.