DHL 2004 Annual Report Download - page 91

87
Consolidated Financial Statements
Notes
IFRS 3: Business Combinations in conjunction
with IAS 36 (Revised 2004): Impairment of Assets
and IAS 38 (Revised 2004): Intangible Assets
In March 2004, the IASB published the reporting standard IFRS 3.
IFRS 3 is part of a fundamental change in the reporting standards
applicable to acquisitions, the first-time recognition of goodwill
arising from business combinations, and the impairment of good-
will in subsequent years. IFRS 3 replaces IAS 22 and modifies IAS 36
and IAS 38.
IFRS 3 follows what is termed the “impairment-only ap-
pr oach” and stipulates that goodwill must subsequently be measured
at cost less any cumulative impairment. Therefore, under IFRS 3,
purchased goodwill may not be amortized; rather, it must be tested
for impairment annually in accordance with IAS 36, irrespective of
whether there are indications that it may be impaired. Additional-
ly, it remains the case that an impairment test must be performed
if there are indications of impairment. IFRS 3 must be applied to
all acquisitions made from April 1, 2004, onwards. From January 1,
2005, Deutsche Post World Net is also obliged to apply IFRS 3 in
recognizing earlier acquisitions in subsequent periods. Goodwill
previously amortized by the Group will then only be written down
on the basis of the carrying amount determined for its subsequent
recognition as of December 31, 2004, if an impairment test in
accordance with IAS 36 confirms that it is impaired.
As a result of the fact that goodwill will no longer be amor-
tized, Deutsche Post World Net expects a positive effect on the
Group’s EBIT, provided it does not have to recognize any impair-
ment losses on goodwill. However, following the adoption of IFRS 3,
impairment of goodwill could lead to major fluctuations in the
Group’s EBIT, which could have a material effect on the Group’s
results of operations.
6 Foreign currency translation
The financial statements of consolidated companies prepared
in foreign currencies are translated into euros in accordance with
IAS 21 (The Effects of Changes in Foreign Exchange Rates) using
the functional currency method. The functional currency of all
foreign companies of Deutsche Post World Net is the local currency,
as the companies operate independently in terms of their financial
and business activities, and organizational structures. Assets and
liabilities are therefore translated at the closing rates, while income
and expenses are generally translated at average rates for the year.
The resulting currency translation differences are taken directly to
equity. Differences of € 28 million (previous year: € –102 million)
were recognized directly in equity in fiscal year 2004 (see also the
statement of changes in equity).
Goodwill resulting from the capital consolidation of foreign
companies is translated at the rates prevailing at the transaction
dates and amortized over its useful life up to December 31, 2004.
The following exchange rates were generally applied to
foreign currency translation in the Group:
Foreign currency
translation
Currency Closing rates Average rates
2003
€1 =
2004
€1 =
2003
€1 =
2004
€1 =
USA USD 1.24990 1.3612 1.13080 1.2433
Switzerland CHF 1.55940 1.5443 1.52090 1.5438
United Kingdom GBP 0.70390 0.709 0.69190 0.6785
Sweden SEK 9.06880 9.0041 9.12450 9.1253
The carrying amounts of non-monetary assets recognized in the
case of consolidated companies operating in hyperinflationary
economies are indexed in accordance with IAS 29 and thus reflect
the current purchasing power at the balance sheet date.
In accordance with IAS 21, receivables and liabilities in the
single-entity financial statements of consolidated companies that
have been prepared in local currencies are translated at the closing
rate. Currency translation differences are recognized in other
operating income and expenses in the income statement. In fiscal
year 2004, other operating income of € 88 million (previous year:
€125 million) and other operating expenses of € 85 million (previous
year: € 71 million) resulted from currency translation differences.
7 Accounting policies
Revenue and expense recognition
Revenue and income from banking transactions, as well as other
operating income, is generally recognized when services are ren-
dered, the amount of revenue and income can be reliably measured
and it is probable that the economic benefits from the transactions
will flow to the Group.
Operating expenses are recognized when the service is
utilized or when the expenses are incurred.
Intangible assets
Purchased intangible assets are carried at cost. Internally generated
intangible assets are carried at cost if the criteria for recognition as
an asset are satisfied. This is the case in particular if future
economic benefits are expected to flow from the assets. At Deutsche
Post World Net, these relate to internally developed software.
In addition to direct costs, the production cost of internally
developed software includes an appropriate share of attributable
production overheads. Any borrowing costs are not included in
production costs. Value added tax arising in conjunction with the
acquisition or production of intangible assets is included in the
cost if it cannot be deducted as input tax.
Additional Information Consolidated Financial Statements