DHL 2006 Annual Report Download - page 118

7 Accounting policies
e consolidated nancial statements are prepared on the basis of historical
costs, with the exception of available-for-sale nancial assets as well as
nancial assets and nancial liabilities at fair value through prot or loss
(especially derivative nancial instruments).
Overriding principle
e conversion right relating to the exchangeable bond was measured on the
basis of Postbank’s retained earnings, citing IAS . (see Note ).
Revenue and expense recognition
Revenue and income from banking transactions, as well as other operating
income, is generally recognized when services are rendered, the amount of
revenue and income can be reliably measured and in all probability the
economic benets from the transactions will ow to the Group.
Operating expenses are recognized in the income statement when the service
is utilized or when the expenses are incurred.
Intangible assets
Purchased intangible assets are recognized at cost. Internally generated
intangible assets are recognized at cost if the criteria for recognition as an
asset are met. is is the case in particular if future economic benets are
expected to ow from the assets. At Deutsche Post World Net, this concerns
internally developed soware. In addition to direct costs, the production cost
of internally developed soware includes an appropriate share of allocable
production overhead costs. Any borrowing costs incurred 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.
Intangible assets are amortized using the straight-line method over their
useful lives. Capitalized soware is amortized over two to ve years, licenses
over the term of the license agreement. Intangible assets are written down if
there are indications of impairment and if the recoverable amount is lower
than amortized cost. e write-downs are reversed if the reasons for the
impairment losses no longer apply.
Intangible assets with indenite useful lives are not amortized but are tested
annually for impairment. In impairment testing, the recoverable amount is
compared with the carrying amount. e recoverable amount is the higher of
the fair value less costs to sell and value in use. If either of these gures exceeds
the asset’s carrying amount, the asset is not impaired and it is not necessary
to estimate its value.
Since January , goodwill has been accounted for using the “impairment
only” approach in accordance with IFRS . is stipulates that goodwill must
be subsequently measured at cost, less any cumulative adjustments from
impairment losses. Purchased goodwill is therefore no longer amortized and
instead is annually tested for impairment in accordance with IAS , regardless
of whether any indication of possible impairment exists. In addition, the
obligation remains to conduct an impairment test if there is any indication of
impairment, as in the case of intangible assets with an indenite useful life.
For the purpose of the impairment test, goodwill is allocated to cash-
generating units (CGUs) or groups of CGUs. e CGUs identied for goodwill
represent the level at which management monitors goodwill for internal
control purposes. EXPRESS, DHL Exel Supply Chain, and DHL Global
Forwarding are among the CGUs or groups of CGUs for which goodwill is
signicant (see also Note ).
e recoverable amount for a CGU is based on its value in use. e calculation
of value in use is based in turn on projections of free cash ow that are rst
discounted at a rate corresponding to the post-tax cost of capital. Pre-tax
discount rates are then determined iteratively. e cash ow projections are
based on management’s adopted detailed budgets for EBIT and capital
expenditure with a three-year planning horizon. To determine value added
beyond the detailed budgeting horizon, the projected cash ows are
extrapolated using a long-term growth rate of up to . e growth rate
reects expectations regarding industry growth for EXPRESS and LOGISTICS,
but does not exceed the estimated long-term growth rate for countries with
the highest contribution to earnings in the relevant CGUs.
e cash ow forecasts are based on both historical amounts and the
anticipated future general market trends for transport volumes, prices, and
quality of service. In addition, the forecasts take into account growth in the
respective national business operations and in international trade, and the
ongoing trend toward outsourcing logistics activities. Cost estimates for the
transportation network and services also have an impact on value in use.
e cost of capital aer taxes is determined using the weighted-average cost
of capital. Borrowing costs have been adjusted such that they are in accordance
with the denition of free cash ows and the carrying amounts of the CGUs.
e assumed discount rate for EXPRESS and LOGISTICS is between . and
..
Property, plant, and equipment
Property, plant, and equipment is carried at cost, reduced by accumulated
depreciation and valuation allowances. In addition to direct costs, production
costs include an appropriate share of allocable production overhead costs.
Borrowing costs are not included in the production costs. ey are expensed
directly. Value-added tax arising in conjunction with the acquisition or
production of items of property, plant or equipment is included in the cost if
it cannot be deducted as input tax. Depreciation is generally charged using
the straight-line method. Deutsche Post World Net uses the following
estimated useful lives for depreciation:
Useful lives
years 2005 2006
Buildings 5 to 50 5 to 50
Technical equipment and machinery 3 to 10 3 to 10
Passenger vehicles 4 to 6 4 to 6
Trucks 5 to 8 5 to 8
Aircraft 15 to 20 15 to 20
Other vehicles 3 to 8 3 to 8
IT systems 3 to 8 3 to 8
Other operating and office equipment 3 to 10 3 to 10
Items of property, plant, and equipment are written down if there are
indications of an impairment and the recoverable amount is less than
amortized cost. e write-downs are reversed if the reasons for the impairment
losses no longer apply.
Operating leases
For operating leases, Deutsche Post World Net as the lessor reports the leased
asset at amortized cost as an asset under property, plant, and equipment. e
lease payments recognized in the period are shown under other operating
income. As a lessee, the lease payments made are recognized as lease expense
under materials expense.
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Deutsche Post World Net Annual Report 2006