BMW Report - Research Paper Example

BMW Report Table of Contents Introduction 3 Report 3 Property and Equipment 3 Components of Property and Equipment 3 Intangible Assets 4 Goodwill 5 Depreciation Methods 5 Impairment 6 Current Liabilities 6 Long term Liabilities 7 Bonds Payable 7 Capital Lease 7 References 9 Introduction Bayerische Motoren Werke AG (BMW) is one of the leading manufacturing companies related to automobile industry. It was founded in the year 1917 and is headquartered at Munich, Germany. Shares of the company are traded in the Frankfurt Stock Exchange with the ticker symbol “BMW”. It manufactures some of the premium branded cars like BMW, Rolls-Royce, etc. The company is also strongly placed in the market related to motorcycle business. The company is mainly focused in generating profitable growth through manufacturing of premium branded cars and marketing them worldwide (Innovation Leaders, 2012). Report Property and Equipment The plant, property and equipment for the company amounted to € 11,685 million and € 11,427 million in the years 2011 and 2010 respectively. The depreciation expenses that have been charged on the property, plant and equipment of the company amounted to € 2,324 million in the year 2011. The depreciation expenses have increased by € 23 million from the 2010 figure which was € 2,301 million (BMW Group, 2012, p.57). If we look at the cash flow statement of the BMW group as presented in its recent annual report for the year 2011, the following details could be found regarding the depreciation expenses, sales and purchase of property by the company and gains from the sale of property and equipment by the company for the year 2011: Depreciation and amortization of other intangible, tangible and investment assets amounted to € 3,654 million. There was no gain / loss of tangible and intangible assets and marketable securities as observed in the cash flow statement. Investment in intangible assets and property, plant and equipment amounted to € 3,679 million. Proceeds from the disposal of intangible assets and property, plant and equipment amounted to € 53 million. The ratio of capital expenditure of the company to its generated revenues for the year 2011 was 5.4%. This figure remained unchanged from the previous year figure (BMW Group, 2012, p.19). Components of Property and Equipment The plant, property and equipments of the company can be further subdivided into three components. They are: Buildings like office buildings, factory buildings, residential buildings and other distribution facilities Plant and machinery Other types of equipments like office equipments and factory equipments. The plant, property and equipments of BMW group are utilized by them as lessee. The different types of vehicles manufactured by the company are leased out to others and act as lessor in this regard. Intangible Assets According to the balance sheet of the company for the year 2011, the total intangible asset of the company amounted to € 5,238 million. The intangible assets of the company comprises of development costs that have been capitalized, goodwill, and other intangible assets like the brand name right of the company. Out of this € 43 million is attributed towards the brand name right of the company. € 33 million is allocated as goodwill amount for the company’s cash generating unit (CGU) meant for Automobiles. € 336 million is allocated as goodwill for the CGU meant for financial services of the company. The capitalized development costs of the company for the year 2011 were € 4,388 million. However € 972 million of development costs were recognized as intangible assets (BMW Group, 2012, p.56). The amortization expense corresponding to the development costs were € 1209 million (BMW Group, 2012, p.57). €113 million was allocated as the amortization costs of other intangible assets of the company. The cash flow statement of the company for the year 2011 showed figures related to sale and purchase of intangible assets as given below: The total investment related to intangible assets and plant, property and equipment of the company amounted to € 3,679 million. The total proceeds of the company related to the disposal of intangible assets and plant, property and equipment was recorded as amounting to € 53 million for the year 2011. Intangible assets differ from the plant, property and equipments of an organization in a way that intangible assets like, patent, copyright, etc. do not have any physical existence. Its existence cannot be felt when touched with hand. However it provides benefits for the organization in long term. The costs related to intangible assets are allocated systematically during the period of useful life of the corresponding intangible assets. This process of allocations of costs related to intangible assets to expenses is known as amortization. Goodwill The total goodwill of the company amounted to € 369 million for the year 2011. The goodwill of the company rose by € 258 million in the year 2011 mainly due to the acquisition of ICL group by the BMW group. The acquisition of a business firm results in the increase of goodwill for the acquiring firm if the acquisition costs exceed the fair value of all the acquired assets and all types of related liabilities that have been assumed by the acquiring firm. Depreciation Methods All types of different components of plant, property and equipment of the company are considered to have finite value of useful lives. The company follows the straight line method of depreciation while calculating the depreciation associated with all its plant, property and equipments. The value of depreciation amounts on the different components of the plant, property and equipments of the company depends on the useful lives of each of the components. BMW group evaluates the depreciation on each of the components of plant, property and equipment depending on its useful lives as indicated below: 1. All the buildings of the company including office buildings, factory premises, residential buildings and distribution facilities are estimated to have useful lives ranging from 8 to 50 years. 2. The plant and machineries of BMW group are estimated to have useful lives ranging from 4 to 21 years. 3. Other equipments of BMW group like the different types of equipments used in its offices and factory premises are estimated to have useful lives ranging from 3 to 10 years (p.90). BMW group is involved in the utilization of same depreciation method, i.e. straight line method for preparing its financial statements as well as for the tax purposes. Impairment As per the annual report of the company for the year 2011, it did not require to recognize losses due to impairment of its assets, be it tangible or intangible assets. The company also did not require recognizing any reversals of the losses due to impairment of its assets as well, for the year 2011. Any type of assets possessed by an organization is said to be impaired if an objective evidence exists which leads to impairment of any of the assets of the company. It implies that there is an evidence of a loss and it has an effect on the cash flows that are estimated to be generated from the corresponding asset of the company in future (Tosen, 2006, p.69). Impairment loss is accounted for in the balance sheet of a company either by using an allowance account or by subtracting from the assets carrying value. Current Liabilities As mentioned in the balance sheet of the company, the current liabilities for 2011 amounted to € 47213 million. Out of this, financial liabilities comprises of € 30,380 million, Trade payables comprises of € 5340 million and current taxes comprises of € 1363 million. The contingent liabilities for the company amounted to 138 million for the year 2011. Provisions were not recognized by the company with regards to these contingent liabilities of the company. Contingent liabilities of the company primarily included guarantees and its performances and it is accounted for purely by non-group entities of the company. Contingent liabilities can be of three types. They are: 1. Probable, which means that there is a probility of the occurrence of the event in future 2. Reasonably possible, which implies that it is less probable that the future event will occur 3. Remote, which implies that the probability of occurence of the future event is very remote Long term Liabilities The total long term liabilities of BMW group amounted to € 49113 million for the year 2011. Out of this 2183 million was recorded as provisions for pension. Deferred tax liability amounted to € 3273 million and long term financial liabilities of the company amounted to € 37597 million. For 2010, the long term liability of the company amounted to € 46100 million. Out of which, pension liabilities, deferred tax liabilities and long term financial liabilities amounted to € 1563 million, € 3400 million and € 35833 million, respectively. The interest and similar expenses incurred by the company for the years 2011 and 2010 are € 943 million and € 966 million respectively. According to the cash flow statement of the company, the proceeds from issuance of bonds amounted to € 5899 million for the year 2011. The repayment of bonds by the company amounted to € 5333 million for the year 2011. Bonds Payable Bonds payables differ from notes payable in the sense that notes payable represents an amount which is attributable to one particular lender, whereas bonds payable are amounts that are attributable to more than one lender who have been issued with the same bond of the company. The bonds which are issued at a price less than the face value of the bond are considered to be bonds issued at discount. The bonds issued at the face value are considered as bonds issued at par and the bonds issued at a price more than the face value of the bond are considered to be bonds issued at premium. Effective interest method is one of the methods used for amortization of bond issue at discount and premium. In this method, calculation of the interest expense corresponding to a bond is calculated as the carrying value of the bond multiplied by its effective interest rate. The amortization amount is the difference between the bond interest expense that has been calculated and the cas that has been paid for the interest amount. Capital Lease The four criteria of a lease to be considered as capital lease are: 1. Ownership transfer at the conclusion of the lease 2. Existence of the option for bargain purchase in the lease agreement 3. The lease term should be at least 75% greater than the useful life of the leased asset. 4. At the start of the lease period, the present value of the minimum amount of payments related to lease should be at least 90% more than fair market value of the asset. The main differences between sales type lease and direct financing lease is that the lessor is actually the dealer who has been responsible for selling the lease in case of sales type lease but not in case of direct financing lease. Moreover, both gross profit and sales are recognized at the inception of the lease in case of sales type lease but not in case of direct financing lease. References BMW Group. (2012). Annual Report 2011. Retrieved from http://www.bmwgroup.com/bmwgroup_prod/e/0_0_www_bmwgroup_com/investor_relations/finanzberichte/geschaeftsberichte/2011/BMW_AG_Jahresabschluss_2011_engl/BMW_AG_Jahresabschluss_2011_engl.pdf. Innovation Leaders. (2012). Profile: BMW. Retrieved from http://innovationleaders.org/bmw_company_profile.html. Tosen, G. (2006). A Practical Guide to IFRS for Derivatives and Structured Finance. London: Euromoney Books. Read More