Porsche 2005 Annual Report Download - page 116
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114
Consolidation Principles
Capital consolidation is performed in accordance with the purchase method pursuant to IFRS 3 (“Business
Combinations”). Purchased assets and liabilities are measured at their fair value on the date of acquisition.
The purchase costs of the shares acquired are then offset against pro rata revalued equity of the subsi-
diary. Any remaining positive difference from offsetting the purchase price against the identified assets
and liabilities is shown as goodwill. To the extent that the identified assets and liabilities exceed the pur-
chase price of the investment, it is recorded in the income statement immediately in the year of acquisition.
Expenses and income as well as receivables, liabilities and provisions between the consolidated entities
are offset. Intercompany profits from the disposal of assets within the Group which have not yet been
resold to third parties are eliminated. Deferred taxes are recognized for consolidations with effect on in-
come taxes. In addition, guarantees and warranties assumed by Porsche AG or one of its consolidated
subsidiaries in favor of other subsidiaries are eliminated.
Investments in associates included using the equity method are carried at cost at the time of first-time
inclusion. The rulings for full consolidation apply by analogy to the measurement using the equity method.
In subsequent periods, the carrying amount is rolled forward to reflect changes in equity of the associate
on the Porsche Group. An impairment test is carried out if there is any indication that that investment is
impaired.
Due to immateriality, the company elects not to eliminate intercompany profits from trade relations
with associates.
Currency Translation
The financial statements of consolidated subsidiaries prepared in foreign currency are translated to the
Euro in accordance with IAS 21. The functional currency is the local currency for all consolidated entities,
since these subsidiaries are independent operations from a financial, economic and organizational per-
spective. Assets, liabilities and contingent liabilities are translated at the mean rate as of the balance sheet
date, while equity is translated at historical rates with the exception of income and expenses recorded
directly in equity. The income statement is translated using average annual exchange rates. Exchange rate
differences resulting from the translation of financial statements are recognized as a separate item directly
under equity until the disposal of the subsidiary.
Foreign currency items in the financial statements of the entities included in consolidation are measured
at the historical rates. Exchange rate gains and losses as of the balance sheet date are recorded in the
income statement.