Annual Report 2012 - Knorr-Bremse AG.

Notes to the Consolidated Financial Statements 153
Our share in the annual results of companies consolidated in accordance with this method, including
amortization on goodwill, is shown in the statement of income under Financial results. Receivables
and liabilities between consolidated companies are netted. Unrealized intercompany profits resulting
from intercompany trade in goods and services are eliminated in the consolidated statements. In the
consolidated statement of income, revenues from intercompany sales and other intercompany income
are offset against the corresponding expenses.
Foreign currency translation
The individual financial statements of the foreign companies included in consolidation are translated
into euros at the mean spot rate at the balance sheet date, with the exception of shareholders’ equity,
which is translated into euros at the historic rate. Income statement items are translated into euros at
the mean rate. Any resulting translation difference is reported under Group equity and noted in the
statement of changes in group equity.
Deferred taxes
Deferred taxes as defined under §§ 274 and 306 of the German Commercial Code (HGB), resulting from
temporary differences between the amount stated in the tax accounts of individual group companies
and the amount stated in the consolidated balance sheet (including differences arising as a result of
accounting and valuation adjustments or during the consolidation process), are netted wherever possible,
in accordance with legal requirements. In the individual balance sheets prepared according to
the uniform principles of accounting and valuation applied to the Group (“Financial statements II”), the
option to capitalize assets to the amount of probable tax relief in the following years is used in individual
cases. The calculation of deferred taxes is based on the tax rates that are expected to be valid at the
time of their realization.
Deferred taxes on losses carried forward are capitalized in individual cases, where there is sufficient
probability that the tax benefits can be realized. At each balance sheet date, the book value of deferred
tax assets is reviewed and, if necessary, adjusted as appropriate.