Notes Accounting and Measurement
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| Accounting and Measurement | Notes on the Balance Sheet | Notes on the Profit and Loss Statement |
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TUI AG notes for the 2007 financial year
The annual financial statements of TUI AG were prepared in accordance with the provisions of the German Commercial Code, with due consideration of the supplementary provisions of the German Stock Corporation Act. Individual items of the balance sheet and the profit and loss statement of TUI AG were grouped together in the interest of the clarity of presentation; these items are reported separately in the notes, together with the necessary explanations.
The financial year of TUI AG covers the period from 1 January to 31 December of any one year.
Accounting and measurement
The accounting and measurement methods and the classification applied in the previous year were retained in the financial year under review.
Purchased intangible assets were measured at cost and amortised on a straight-line basis over the expected useful life of three or five years, trademark rights over ten years.
Property, plant and equipment were measured at cost, based on tax provisions as a matter of principle, less depreciation. For building and land improvements, depreciation was either calculated on a straight-line basis or, where permitted by tax regulations, on a declining balance basis. Aircraft was depreciated on a declining balance basis, taking account of a useful life of twelve years and residual proceeds of 1% of acquisition costs. Container ships were depreciated on a straight-line basis, taking account of a useful life of twelve years. Shorter depreciation periods were applied to purchases of used ships. Depreciation of containers and container semi-trailers was also effected on a straight-line basis. Other depreciable property, plant and equipment with a useful life of more than five years were depreciated on the basis of the declining balance method. The maximum rate of 30% permissible under tax rules was applied to additions made after 1 January 2006, while a 20% rate was applied to additions made prior to that date. Straight-line depreciation was regularly applied whenever the calculated amount based on this method exceeded that obtained by using the declining balance method. Where use was made of special tax depreciation allowances, assets were depreciated on a straight-line basis. Low-value assets were written off in full in the year of acquisition and shown as disposals.
Depreciation was essentially based on the following useful lives:
| Property, plant and equipment | Useful life |
|---|---|
| Buildings | 10 to 50 years |
| Machinery and fixtures | 4 to 15 years |
| Container ships | up to 12 years |
| Containers and container semi-trailers | up to 10 years |
| Aircraft and spare parts | up to 12 years |
| Other plant, office and operating equipment | 3 to 15 years |
Fixed assets with a lower market value expected to be permanent at the balance sheet date were impaired by a corresponding amount.
Shares in Group companies and participations as well as other investments were measured at the lower of cost or fair value. Non-interest or low-interest investments were discounted to their present values. The requirement to reverse impairment was met by means of write-backs.
Consumables and supplies were measured at the lower of cost or market value.
Receivables and other assets were recognised at the lower of nominal or fair values. Concerning these items, all identifiable individual risks and the general credit risk were accounted for by means of appropriate value discounts.
Hedged foreign currency receivables and liabilities were measured at the rate of exchange at the forward hedging transaction date. As a matter of principle, short-term unhedged currency items were measured at the exchange rate at the balance sheet date. Long-term unhedged currency receivables were translated at the buying rate at the date of the transaction or the closing rate, if lower. Long-term unhedged currency liabilities were measured at the selling rate of the date of the transaction or the closing rate at the balance sheet date, if higher.
Under prepaid expenses, the difference between the issuing amount of bonds and the amount repayable was capitalised as a discount and written off on a straight-line basis over the term of the bonds. Where deviations from the redemption schedule occurred, the corresponding assets were impaired. Items resulting from the issuance of convertible bonds and transferred to the capital reserves were capitalised as a discount and reversed over the period of the expected use of the conversion options.
The creation of the special non-taxed item was based on the opportunity to carry forward book profits. The special non-taxed item comprised the differences between tax-based and commercial-law depreciation.
As before, the commercial-law measurement of pension obligations was effected on the basis of IFRS regulations (IAS 19). The biometric data underlying the measurement of the pension provisions were based on the ‘2005 G reference tables’ – so-called ‘generation tables’ – by Prof Dr Klaus Heubeck.
Provisions for taxes and other provisions were calculated on the basis of prudent business judgement principles.
The discount rate applied in the determination of provisions for anniversary bonuses was 5.5% p.a. All other provisions were carried at nominal amounts, unless an interest portion had to be taken into account.
Provisions were formed for negative market values of derivative financial instruments. All derivative financial instruments were fixed-price or optional over-the-counter (OTC) transactions for which a stock market price could not be determined. The derivative commodity hedges were performed by means of cash remuneration, as the difference between market price and hedge price. Physical delivery was not effected.
The determination of the fair values for the optional derivative financial instruments was based on the Black & Scholes model. Measurement of fixed-price derivative transactions was based on the discounted cash flow of the transactions, taking account of interest, price and volatility curves, where applicable, with matching maturities as at the balance sheet date.
Recognised IT systems were used to support measurement of the instruments. For quality assurance purposes, the determined amounts for non-Group companies were compared with figures provided by external counterparties as at the balance sheet date.
Other provisions reflected all identifiable risks and doubtful obligations. All liabilities were carried at the repayable amounts.