PDF, 1.2 MB - Pfleiderer AG

114 being focused: being better
XI. Deviations in Accounting, Valuation and Disclosure Procedures under Sec. 292a HGB
(“Handelsgesetzbuch”, German Commercial Code)
1. Leasing
2. Valuation of inventories
In accordance with the exemption rule provided under Sec. 292a HGB, the Consolidated Financial
Statements of Pfleiderer AG have been drawn up in compliance with the United States
Generally Accepted Accounted Principles (US GAAP) in force on the balance sheet date.
The main differences in accounting, valuation and consolidation under US GAAP compared
to the German HGB rules are as follows:
HGB does not rule explicitly how leasing transactions should be treated. When deciding how to
account such transactions, German companies generally apply rules on leasing promulgated by
their domestic taxation authorities. Applying tax criteria to leasing agreements has the effect
that the leased asset is recognized in the balance sheet of the lessor.
US GAAP provides extensive rules (in particular SFAS 13) on how leasing transactions
should be dealt with. The central principle revolves around which of the parties carries the substantive
risks and rewards associated with the leased asset, and can thus be regarded as its
economic owner. This is the difference between capital lease and operating lease. As economic
owner, the lessee must capitalize the leased asset, whereas this duty lies with the lessor
when the transaction is regarded as an operating lease.
Under HGB rules, inventories are valued as of the balance sheet date at the lower of cost or
market, or at fair value. Fair value of raw materials, consumables and supplies is determined
according to replacement price, and fair value of work in process and finished goods retrospectively
from net selling prices obtained for the products in question.
Under US GAAP, APB 43 also requires that inventories be valued at the lower of cost or
market. However US GAAP differs from HGB for all types of inventories in the method used to
determine the value of the asset, in particular taking into account both procurement price and
the value at which the item can be sold. Where cost of replacement is lower than acquisition
or production cost, inventories must be valued at the average of replacement cost, realizable
net selling price and net selling price less normal operating margin. Net selling price less normal
operating margin is the floor value, even when cost of replacement is lower. Raw materials,
consumables and supplies are valued at the lower of replacement and acquisition cost, without
taking into account the selling price.