Porsche 2010 Annual Report Download - page 148

Financials
146
An impairment test was carried out in the reporting period for both the investment in
Volkswagen AG and the investment in Porsche Zwischenholding GmbH. Value in use was determined
for both investments using the discounted cash flow method. The most recent five-year plan ap-
proved by the management of the equity investments was used as a basis. A growth rate of 1% was
used to extrapolate the cash flow beyond the detailed planning phase. The sustainable EBIT margin
was determined conservatively, taking into account the EBIT margins generated in the last two
reporting years. A weighted average cost of capital of 6.6% or 7.2% (prior year: 6.5% or 7.3%) was
used to discount cash flows. This was derived from a specific group of comparable entities (peer
group) for each equity investment to reflect a return on capital that is appropriate for the risks
involved in the respective business operations. When selecting the two peer groups, the special
aspects of the multi-brand strategy pursued by VW as well as of those of the sports car business of
the Porsche Zwischenholding GmbH group were taken into consideration.
Even an isolated decrease in the EBIT margin by 20% or a growth rate of 0%, or an isolated
increase in the WACC by 20% would not lead to an impairment of either equity investment.
Currency translation
Foreign currency items in the financial statements of the entities included in the consoli-
dated financial statements are measured at the spot exchange rates on the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated into the functional
currency at the closing rate. Non-monetary items denominated in a foreign currency measured at
historical cost are translated using the exchange rate on the date of the initial transaction. Non-
monetary items measured at fair value in a foreign currency are translated using the exchange rate
prevailing on the date when the fair value was determined. Exchange rate gains and losses as of the
reporting date are recorded in profit or loss.
Goodwill and adjustments to recognize assets and liabilities arising from business combina-
tions at their fair value are expressed in the functional currency of the subsidiary.
The financial statements of consolidated subsidiaries prepared in a foreign currency are translated
to the euro in accordance with IAS 21. The functional currency of the company included in consolidation is
the currency of the primary economic environment in which it operates.