Porsche 2011 Annual Report Download - page 162

If the carrying amounts are no longer realizable due to a decrease in prices in the sales market,
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
percentage 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 under trade receivables as
future receivables from long-term development contracts. Any negative balance is reported under trade
payables. The principle of measuring assets at the lower of carrying amount and net realizable value is taken
into consideration.
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 financial asset differs
from the settlement date, it is initially accounted for at the settlement date. Initial recognition of a financial
instrument is at fair value. Transaction costs are included for financial instruments not designated as at fair
value through profit or loss. Subsequent measurement of financial instruments is either at fair value or
amortized cost depending on their category. Each financial instrument is allocated to a category upon initial
recognition.
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)
· Loans and receivables (LaR)
Financial liabilities are divided into the two categories:
· Financial liabilities at fair value through profit or loss (FVtPL) and held for trading (HfT)
· Financial liabilities measured at amortized cost (FLAC)
Depending on the category, measurement of financial instruments is either at fair value or amortized cost.
162 FINANCIALS