7 Estimates and judgments
When preparing consolidated financial statements, certain assumptions and estimates are made that have an effect on the amount and reporting of assets and liabilities, information on contingent assets and liabilities on the balance sheet date, and on income and expense reported in the period under review. The preparer of consolidated financial statements has a degree of discretion here.
The following are the key issues affected by assumptions and estimates:
- assessing the recoverability of goodwill,
- the measurement of intangible assets and of items of tangible assets,
- assessing impairment of trade receivables and receivables from sales financing,
- recognition and measurement of other provisions,
- the recognition and the measurement of provisions for pensions and similar obligations.
In the impairment test for goodwill, the recoverable amount of the cashgenerating unit is determined as the higher of its fair value less the cost to sell and its value in use. The fair value here reflects the best estimate of the amount for which an independent third party would acquire the cash-generating units at the balance sheet date. The value in use is the present value of the estimated future cash flows expected from the cash-generating unit. A change in determining factors may change the fair value or the value in use and could result in the recognition of an impairment loss.
The Group-wide established economic useful lives for intangible assets and for items of tangible assets are subject to management assessments. In addition, the impairment test determines the recoverable amount of the asset or cash-generating unit to which the asset is attributed as the higher of fair value less costs to sell and value in use. The fair value here reflects the best estimate of the amount for which an independent third party would acquire the asset at the balance sheet date. The value in use is the present value of the estimated future cash flows that can be anticipated from the continued use of the asset. A change in determining factors may change the fair value or the value in use and could result in the recognition or reversal of an impairment loss.
Credit and default risks arise for trade receivables and receivables from sales financing to the extent that customers do not meet their payment obligations and assets are lost as a result. The necessary impairment is calculated in line with the creditworthiness of customers, any collateral pledged, and experience based on historical default rates. The customer’s actual default may differ from the expected default on account of the underlying factors.
The amount and probability of utilization are estimated in the recognition and measurement of other provisions. They are measured either at the most likely settlement amount or, if probabilities are equal, at the expected settlement amount. The amount of the actual utilization could deviate from estimates.
The calculation of the provisions for pensions and similar obligations is based on the parameters listed in note 27. Increasing or reducing the interest rate used in calculations by one quarter of a percentage point to 5.0 percent or 4.5 percent respectively (previous year: to 6.25 percent or 5.75 percent respectively) would result in a € 28,298 thousand (previous year: € 20,244 thousand) reduction or a € 30,175 thousand (previous year: € 21,501 thousand) increase in pension claims. After income taxes, the losses offset in equity would be reduced by € 20,335 thousand (previous year: € 14,547 thousand) or increased by € 21,684 thousand (previous year: € 15,450 thousand) respectively.
The impairment test is based on the parameters listed in note 19. As in the previous year, increasing or reducing the discount rate after taxes by one percentage point to 8.0 percent or 6.0 percent respectively (previous year: 8.0 percent and 6.0 percent) would not result in any impairment requirements. The same applies to a change in the growth factor used to calculate the perpetual annuity by one percentage point either way and five percent for the changes in the result of operating activities.
The assumptions and estimates are based on the information and data currently available. Actual developments could deviate from the estimates. The carrying amounts of the relevant assets and liabilities are adjusted accordingly if actual amounts deviate from estimated values.