Page 36 - Hoftex Annual Report 2018 EN

Letter to Shareholders
Supervisory Board Report
Group Management Report Consolidated Financial Statements Annexes
Equity interests in non-consolidated affiliates and other equity interests are carried at cost or, in the event of permanent value impairment, at the lower of cost and fair value. If the reasons for retaining the lower value no longer apply, the write-downs are reversed pursuant to Section 253(5) HGB. The entitlement of the exemption outlined in Section 313 (3) sentence 4 HGB is exercised here.
Equity interests in associates are recognised using the equity method pursuant to Section 312 HGB. Any remaining difference from the purchase of equity interests in an associate or from an increase in the equity interest in an existing associate after 31 December 2008 was amortised using the straight- line method over a period of five years, provided it was characterised as goodwill.
Loans are carried at face value or, where appropriate, at the lower of cost and fair value.
Raw materials, consumables and supplies are recognised under inventories using the average cost method or at the current market value on the purchase or sales market, whichever is lower.
Finished and unfinished goods are carried at cost pursuant to Section 255(2) HGB. Production costs include direct material costs, direct production costs, extraordinary direct production costs and a reasonable portion of material overheads, production overheads and impairment charges for fixed assets provided they are production-related. They also include a reasonable share of the other general and administrative expenses. Borrowing costs are not included in the production cost.
When replacement costs or realisable prices are the lower of cost or market on the balance sheet date, write-downs are taken on the lowest value. Reasonable and adequate write-downs are recognised to cover resale risk.
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If consolidation rules (Sections 300 to 307 HGB) result in additional differences between the book value and the tax base of assets, liabilities, prepaid expenses and deferred income, and these diffe- rences are likely to diminish in subsequent fiscal years, the net tax charge must be recognised as a deferred tax liability and the net tax saving must be recognised as a deferred tax asset, which are both calculated with the flat tax rate of 29 %. Deferred tax assets and liabilities are netted in accordance with the option provided in Section 306 HGB.
Accounts receivable and other assets are generally carried at face value. Specific valuation allow- ances are made for accounts receivable based on the likelihood of default. General valuation allowances are made for overall credit risk, generally based on past experience.
Cash and cash equivalents are recognised at their nominal value.
Prepaid expenses relate to expenditures prior to the balance sheet date that pertain to a determin- able period after this date; amortisation is recognised on a straight-line basis over the specified period of time.
Taxes are deferred on the basis of the temporary concept. The single-entity financial statements of the companies included in consolidation recognise deferred tax liabilities where differences arise between the book value and the tax base of assets, liabilities, prepaid expenses and deferred income, and these differences are likely to diminish in subsequent fiscal years and result in a tax charge. If the differences result in a tax savings in subsequent fiscal years, it is only recognised up a maximum of the deferred tax liabilities from other temporary differences. Where there is an excess of deferred tax assets over deferred tax liabilities, the resulting net deferred tax assets are not recognised. Deferred tax assets are not recognised for tax loss carry-forwards. Deferred tax assets for domestic Group companies are calculated using an income tax rate of 29 % (corporate tax rate 15 %, trade tax 14 %). The relevant income tax rate in the country in question is used for subsidiaries outside Germany and ranges between 16 % and 28 %.