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1 PFLEIDERER AG NINE-MONTH FINANCIAL REPORT 2007

1 PFLEIDERER AG NINE-MONTH FINANCIAL REPORT 2007

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Government grants<br />

Government assistance and grants are deducted on receipt from the recognized cost of the<br />

subsidized assets, provided that the corresponding investment conditions will be fulfilled.<br />

Leases<br />

Leasing transactions are classified either as finance leases or as operating leases. Beneficial<br />

ownership of the leased item is assigned to the contractual partner that has substantially all the<br />

rewards and risks incidental to ownership of the leased item.<br />

If the lessor has substantially all the rewards and risks (operating lease), the leased item is<br />

recognized as an asset by the lessor. The lease payments billed are recognized as income. The<br />

lessee in an operating lease recognizes the lease payments made during the term of the lease as<br />

expense.<br />

If the lessee has substantially all the rewards and risks incidental to ownership of the leased item<br />

(finance lease), the lessee recognizes the leased item as an asset. The leased item is measured at<br />

its fair value at inception of the lease or at the lower present value of the minimum lease payments,<br />

and depreciated or amortized over the shorter of its estimated useful life and the term of the lease.<br />

The lessee recognizes a leasing liability in the same amount at inception of the lease. The leasing<br />

liability is amortized in subsequent periods using the effective interest method.<br />

Intangible assets<br />

Purchased intangible assets are recognized at cost and amortized over their useful lives using the<br />

straight-line method.<br />

Expenses incurred in connection with the purchase and internal development of internal use<br />

computer software, including the costs incurred to bring the software to its working condition, are<br />

capitalized and amortized over the expected useful life of the software using the straight-line method.<br />

The expected useful life of software, patents, licenses, and similar rights is generally three to five<br />

years. Other useful lives may arise on the initial consolidation of intangible assets that are acquired<br />

as part of a business combination.<br />

Capitalized development costs include the costs of materials and services and the costs of employee<br />

benefits incurred in the development of the assets, as well as other directly attributable costs. They<br />

are amortized over their expected useful lives. Research costs are reported as expenses in the<br />

period in which they are incurred.<br />

In the absence of specific IFRS guidance, emission rights are generally accounted for in accordance<br />

with the accounting provisions of German commercial law (IDW RS HFA 15). The rights are<br />

presented in intangible assets. Purchased emission rights and those issued free of charge are carried<br />

at cost. For rights issued free of charge, a liability is recognized in the amount of the capitalized fair<br />

value of the emission right. Gains or losses on the sale of emission rights are recognized in profit or<br />

loss. In the first nine months of fiscal year <strong>2007</strong>, the Pfleiderer Group did not generate any proceeds<br />

from the sale of emission rights.<br />

29 <strong>PFLEIDERER</strong> <strong>AG</strong> <strong>NINE</strong>-<strong>MONTH</strong> <strong>FINANCIAL</strong> <strong>REPORT</strong> <strong>2007</strong>

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