Ebook Available For Sale Financial Assets

Siemens Finance Training - eBook V0048
Available-for-Sale Financial Assets

Area: Accounting
Module: Assets, Liabilities and Equity
Lecture: Available -for-Sale Financial Assets
Various types of contracts qualify as financial instruments. This Lecture explains which of these
financial instruments are classified as available-for-sale financial assets. Furthermore, it provides an
understanding of the recognition and derecognition of available -for-sale financial assets as well as their
initial and subsequent measurement, including impairments and their reversals. Additionally, this
Lecture gives an overview of the presentation and disclosure requirements for available -for-sale
financial assets.
This Lecture discusses accounting for available-for-sale financial assets. Available -for-sale financial
assets are a category of financial instruments , in particular financial assets. Typically, equity
instruments and debt instruments but also fund shares are assigned to this category. These
instruments are mainly kept for two reasons, short-term profit (liquidity management) or strategic
purposes.
Accounting for available -for-sale financial assets typically involves the challenges related to the
accounting for assets, i.e. recognition, measurement as well as presentation and disclosure. Therefore,
the Lecture explains when available-for-sale financial assets have to be recognized and derecognized,
at what amount they have to be initially and subsequently measured, and how this amount can be
determined. Furthermore, the presentation and disclosure requirements are also briefly discussed. The
following graphic illustrates the flow of the Lecture.
This Lecture is based primarily on the Siemens Financial Reporting Guidelines and the related
International Financial Reporting Standards (IFRS). Accounting for available -for-sale financial assets is
regulated in IAS 39, IAS 32 and IFRS 7.
Within this Lecture, the following Sub Lectures will be covered:
Introduction This Sub Lecture gives a short overview of what available -for-sale financial
assets are, the purpose of their use and why they are important for
Siemens.
Scope of Available -for- The purpose of this Sub Lecture is to give an overview of financial
Sale Financial Assets instruments in general and to explain why this Lecture focuses on the
Page 1 of 36 - Version from August 2010 © Siemens 2010

category of available -for-sale financial assets.

Recognition The major concerns within recognition are when an available -for-sale
financial asset has to be recognized in Siemens ’ balance sheet and when it
shall be derecognized. Both challenges are discussed within this Sub
Lecture.
Initial Measurement This Sub Lecture explains at what amount available-for-sale financial assets
shall be measured on their initial recognition, how this amount can be
determined, and how transaction costs shall be treated.
Subsequent Subsequent measurement means the determination of the carrying amount
Measurement on the subsequent balance sheet dates. In this context, fair value changes,
impairment and the reversal of impairments are of particular interest and
are discussed in this Sub Lecture.
Presentation and Accounting for available -for-sale financial assets also includes the
Disclosure Requirements presentation of these assets on the balance sheet and the related income
and expenses in the income statement. This Sub Lecture explains what
information is necessary, how it is gathered, and how it is presented and
disclosed.

Sub Lecture: Introduction

What are Available-for-Sale Financial Assets?
Available-for-sale financial assets are a specific category of financial instruments and comprise equity
instruments, debt instruments , and fund shares. Available-for-sale financial assets are kept for ( short-
term) financial disposition (liquidity management) but also for (long -term) strategic investments in other
entities with the objective of control, affiliation or some continuing business relationship, and which are
not consolidated or are not accounted for using the equity method. Available -for-sale financial assets
therefore serve as a link between assuring Siemens’ liquidity and investing in other entities. According
to the liquidity needs, these investments are basically available for sale, i.e. they can be reconverted
into cash more easily than investments in subsidiaries or property, plant and equipment (PP&E).
What is the Aim of Available-for-Sale Financial Assets?
The aim of investing in available -for-sale financial assets is to receive a higher rate of return than for
cash on hand. Siemens therefore invests in equity and debt instruments but also in fund shares. These
investments can be either short -term or long -term. While short -term investments usually aim to receive
income, long-term investments sometimes have a strategic character.
Why are Available -for-Sale Financial Assets Important for Siemens?
Siemens aims to create shareholder value . In this context, available -for-sale financial assets serve as
more profitable opportunities compared to keeping cash on hand. Furthermore, available -for-sale
financial assets represent small investments in businesses where Siemens aims to achieve control or a
continuing business relationship.

Sub Lecture: Scope of Available -for-Sale Financial Assets

This Sub Lecture outlines the scope of available -for-sale financial assets. It defines which assets and
liabilities are financial instruments and therefore which topics and balance sheet items are covered in
this Lecture as they are categorized as available -for-sale financial assets.
Definition of Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial
liability or an equity instrument of another entity. Various types of contracts fulfill this definition.
Therefore numerous balance sheet line items are financial instruments, e.g. receivables, cash and
cash equivalents or other financial assets as well as payables or other financial liabilities. The following
graphic illustrates the definition of a financial instrument.
For more information on balance sheet line items please refer to the Lecture Balance Sheet, Income
Statement. Please refer to the Lecture Receivables for more information on receivables and, for more
information on liabilities, please refer to the Lecture Liabilities. They can all be accessed by clicking the
Lecture reference icons on the right-hand side.
In this Lecture, two specific forms of financial instruments are of particular interest: equity and
debt instruments . Both will be explained in further detail in the following paragraphs.
Equity Instruments
An equity instrument is any contract that constitutes a residual interest in the assets of an entity after
deducting all of its liabilities. This means that holders of equity instruments only receive a payback on
their investment if the claims of all creditors have been satisfied. Therefore the cash flows to the
shareholders are subject to higher risk than those to the holders of debt instruments .
The holder of an equity instrument mainly receives dividends from the issuer. Therefore the fair
value of an equity instrument depends on future dividend payments or rather the expectations
placed on them. An important characteristic of an equity instrument is that it includes no contractual
obligation to deliver cash or any other financial asset to another entity or to other holders of the equity
instrument. This means that the holder cannot enforce a claim against the issuer for repayment.
The following graphic illustrates this relationship between the issuer and holder of the equity
instrument. In this Lecture, Siemens is always the holder of an equity or a debt instrument, since only
assets are considered.

As already mentioned above, the other specific form of financial instruments of particular interest are
debt instruments.
Debt Instruments
A debt instrument is a contract under which the issuer receives capital in return for the holder’s
right to receive interest and the repayment of the capital given. In contrast to the equity instrument
described above, the holder of a debt instrument can enforce a claim against the issuer for repayment.
In other words, a debt instrument includes an obligation to deliver cash or any other financial asset to
another entity. Furthermore, while debt instruments have a maturity, equity instruments have
none.
The holder of a debt instrument receives interest payments and repayments from the issuer. Therefore
the fair value of a debt instrument is the present value of the outstanding payments,taking into
consideration the creditworthiness of the issuer and the current market price for money, i.e. the interest
rate for the maturity of the debt instrument.
The following graphic shows the relationship between the issuer of a debt instrument and the holder,
i.e. Siemens.
Bonds , the debt instruments covered in this Lecture, are usually quoted in active markets. Equity
instruments, on the other hand, can be both quoted in active markets and available for purchase
beyond the active capital market.

There are many additional types of financial instruments, such as convertible bonds, options, forwards
etc. However, these are not discussed in this Lecture.
Categories of Financial Instruments
Under IFRS , financial instruments have to be assigned to one of four categories of financial
instruments. These categories are:
l At fair value through profit or loss
l Held to maturity
l Loans and receivables
l Available-for-sale financial assets .
The following section gives a brief explanation of each category.
At Fair Value through Profit or Loss
This category is divided two sub-categories: financial assets held for trading and designated at fair
value through profit or loss. The latter is called the “fair -value option ” because an entity is allowed to
designate any financial instrument into this category if certain criteria are met. However, Siemens is
currently not using the "fair -value option" , as its use is limited and complex.
A financial asset is held for trading if it is:

l acquired or incurred principally for the purpose of selling or repurchasing in the near term;
l part of a portfolio of identified financial instruments that are managed together and for which
there is evidence of a recent actual pattern of short-term profit taking; or
l a derivative (except those which are part of an effective hedging relationship).
Siemens does not assign financial instruments other than derivatives (except those which are
part of an effective hedging relationship) into the category at fair value through profit or loss .
For more information on hedging and hedge accounting , please refer to the Lecture Foreign Currency
Accounting, which can be accessed by clicking the respective Lecture reference icon on the right -hand
side.
Held to Maturity
Held-to -maturity investments are non -derivative financial assets with fixed or determinable payment
and fixed maturity that an entity has the positive intention and ability to hold to maturity and that
are not assigned to one of the other three categories.
Siemens does not use this category as its usage involves restrictions to reselling the financial assets
allocated to it. However, only debt instruments have a fixed maturity as well as a fixed determinable
payment at maturity, and could be designated to this category.
Loans and Receivables
This category embodies non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market, other than those:
l that Siemens intends to sell immediately or in the near term; these are classified as held for
trading;

l that Siemens designates as available -for-sale financial assets; or

l for which the holder may not substantially recover all of its initial investment, other than because
of a worsening in creditworthiness; these are classified as available -for-sale financial assets.
This category also covers loans and receivables issued by Siemens as well as those issued by another
entity and acquired by Siemens.
An interest acquired in a pool of assets that are not loans or receivables (e.g. an interest in a mutual
fund or a similar fund) is not a loan or a receivable.
For more information about receivables, please refer to the Lecture Receivables, which can be
accessed by clicking on the Lecture reference icon on the right -hand side.
Available-for-Sale Financial Assets
Available-for-sale financial assets are those non-derivative financial assets that are:
l designated as available for sale; or
l are not classified into one of the other categories explained above.
Therefore this category typically includes non-derivative debt instruments quoted in an active
market (and not designated as held to maturity) as well as those non-derivative equity instruments
that are not assigned to the at fair value through profit or loss category.
The available -for-sale financial assets category is very important at Siemens, as held to maturity is not
used and held for trading is only used for derivatives. Two main business cases are reflected through
available-for-sale financial assets: short-term investments in equity or debt instruments and fund
shares to manage liquidity and long -term investments in other entities to establish a continuing
business relationship .
Current and Non -Current Available-for-Sale Financial Assets
The purpose of the investment is decisive in distinguishing between current and non-current available -
for-sale financial assets.
As a part of its short-term financial disposition, Siemens invests in equity and debt instruments, and
in fund shares in order to receive a higher rate of return than for cash on hand. It is important that these
investments can be reconverted into cash within a short period of time, i.e. when the respective liquidity
is needed. In order to reflect this short-term investment horizon, these financial assets are referred to
as current available-for-sale financial assets.
In the event that the investment in another entity also has a strategic component , i.e. Siemens is,
among other activities, investing in another entity for a long-term business relationship , the
investment is a non-current available-for-sale financial asset if it is not (fully) consolidated or
accounted for using the equity method. Often a small investment is the starting point for a business
combination , i.e. Siemens as the acquirer does not achieve control with its first investment but after
one or more steps. This course of action is referred to as a step acquisition.
An investment may qualify as a subsidiary or an associate, but as long as the investment is not (fully)
consolidated or accounted for using the equity method , it is a financial asset and part of available-
for-sale financial assets . By the time Siemens gains significant influence over another entity, the

investment is accounted for using the equity method. In the event that Siemens achieves control, the
investment is fully consolidated.
The reverse may also occur. In the event that Siemens sells most of its shares in a subsidiary but
retains a small percentage of the shares, the entity ceases to be fully consolidated – or to be
consolidated at equity. The remaining shares are available-for-sale financial assets from the point in
time when Siemens loses control or significant influence.
For more information about business combinations, please also refer to the Lecture Business
Combinations. For further information about step acquisitions, please refer to the Lecture Consolidation
II. Both can be accessed by clicking the Lecture reference icon on the right-hand side.
Investments in subsidiaries or associates are also shown under non -current available -for-sale financial
assets if they are not (fully) consolidated or accounted for using the equity method.
Distinction Between Available-for-Sale Financial Assets and Cash Equivalents
Current available-for-sale financial assets, especially debt instruments, are not always easy to
distinguish from cash equivalents.
Cash equivalents are short-term, highly liquid investments that are readily convertible to known
amounts of cash and are subject to an insignificant risk of changes in value. Short-term in this
context means that the investment falls due within three months from its acquisition date.
Cash equivalents principally qualify as financial instruments and could therefore also be available -for-
sale financial assets. Nonetheless, presenting cash equivalents and equity or debt instruments together
would not give consideration to the different risks of changes in value inherent in them. IFRS
therefore stipulates that cash equivalents must be presented together with cash as a single line
item and the carrying amounts of available -for-sale financial assets must be presented either on
the face of the balance sheet or in the notes. Cash equivalents are in sum not part of available-
for-sale financial assets and are therefore not covered within this Lecture.
Furthermore, available -for-sale financial assets are not reclassified into cash equivalents if their
maturity is less than three months but they have been acquired outside a three-month period from their
maturity .
Difference Compared to Derivatives
One of the main characteristics of a derivative is that its value changes in response to the change
of the "underlying" price, i.e. an interest rate, financial instrument price, commodity price, exchange
rate, etc. As the price change of the derivative is a leveraged price change of the “underlying ” price,
the risk of changes in value is higher than for an equity or debt instrument.
Furthermore, derivatives are acquired to be settled, not for investment purposes. In other words,
they are held for trading or to hedge certain risks. Therefore derivatives are automatically included in
the at fair value through profit or loss or held for trading category (unless they are a designated
and effective hedging instrument in hedge accounting). The recognition of changes in value through
profit or loss better reflects the economic substance of these financial instruments.
Focus of the Lecture

The following graphic illustrates the scope of the Lecture.
As explained before, financial assets within financial instruments have to be categorized. This Lecture
focuses on available-for-sale financial assets. This category contains mainly equity instruments and
debt instruments (bonds, i.e. quoted in active markets). Therefore the scope does not include financial
liabilities and the loans and receivables and held for trading categories. As mentioned before, the held
to maturity category is not used by Siemens.

Sub Lecture: Recognition and Derecognition

This Sub Lecture deals with the recognition and derecognition of available-for-sale financial
assets . It explains how equity and debt instruments fulfill the recognition criteria and therefore qualify
as financial instruments. Within financial instruments, equity and debt instruments are usually
categorized as available -for-sale financial assets. The derecognition of financial instruments is
discussed briefly in the Details section.
Asset Criteria
Available-for-sale financial assets are primarily assets, in particular financial assets. They therefore
have to fulfill the general asset criteria. Under IFRS, an asset is a resource controlled by the
enterprise as a result of past events and from which future economic benefits are expected to flow to
the enterprise. For financial assets, these criteria can be specified further. This resource is usually a
contract that is due to a past event, i.e. the signature of the contract. It is controlled by Siemens, as
Siemens is one of the contractual parties, and future economic benefits, i.e. the inflow of cash, are
expected. A financial asset typically fulfills these asset criteria, yet the main challenge is to determine
the point in time when it fulfills them.
Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial
liabilty or an equity instrument of another entity. The following paragraphs will explain this definition
using the example of the two types of financial assets covered in this Lecture: equity and debt
instruments.
In general, a financial instrument shall be recognized when Siemens becomes the contractual
party.
For more information about the recognition of other types of financial instruments, please refer to the
Lectures Receivables and Liabilities, both of which can be accessed by clicking on the Lecture
reference icon on the right.
Equity Instruments
An equity instrument is a contract that leads to an equity instrument for the issuer and a financial
asset for the holder. It therefore fulfills the recognition criteria for financial instruments. For the
purpose of this Lecture, only those equity instruments that raise a financial asset for Siemens will be
considered. They have to be recognized when Siemens becomes the contractual party.
For investments in other entities, the financial asset is recognized upon the legal transfer of
ownership or when the increase in capital stock is entered in the commercial register. The reason for
this regulation is that Siemens achieves control of the financial assets – not over the entity – by that
point in time.
Debt Instruments
A debt instrument is a contract that raises a financial liability for the issuer and a financial asset for the
holder. It therefore fulfills the recognition criteria for financial instruments. For the purpose of this
Lecture, only those debt instruments that raise a financial asset for Siemens will be considered. They
have to be recognized when Siemens becomes the contractual party.

Derecognition
At maturity or when the available -for-sale financial asset is sold, it may be derecognized. A financial
asset shall be derecognized when the risks and rewards of ownership have been transferred.
Under certain circumstances, however, derecognition is more complex.
For more information on derecognition, please refer to the Details section.

Detail: Derecognition
Explanation
The removal of a previously recognized available -for-sale financial asset from Siemens ’ balance sheet
is referred to as derecognition.
The derecognition of an available-for-sale financial asset is usually more complex than its recognition .
In particular, the point in time when an available -for-sale financial asset has to be derecognized is
sometimes unclear. Therefore certain derecognition criteria have been set up.
Criteria for the Derecognition of an Available-for-Sale Financial Asset
The basic concept for derecognition under IFRS is the risk and reward approach . This means that
an available -for-sale financial asset has to be derecognized as soon as the risks and rewards of its
ownership have been substantially transferred to the buyer. If the risks and rewards of ownership
have been retained, Siemens shall continue to recognize the available -for-sale financial asset. Any
consideration received, e.g. payment, is treated as a liability in this case. This is referred to as
continuing involvement.
An available -for-sale financial asset shall be derecognized if:
l the contractual rights to the cash flows expire;

l the contractual rights to the cash flows and a substantial proportion of the risks and
rewards of ownership are transferred to the buyer;
l Siemens assumes a contractual obligation to pay the cash flows to another external entity
and substantially transfers all the risks and rewards of ownership; or
l a substantial proportion of the risk and rewards of ownership is neither transferred nor retained
but control has been transferred.
The following graphic illustrates these statements and their context.

The risks and rewards of ownership approach considers mainly credit risk but also risks relating to
delayed payment, changes in interest rates and foreign currency .
Accounting for the Derecognition of an Available-for-Sale Financial Asset
If an available -for-sale financial asset is completely derecognized , the difference between its carrying
amount and the total of the consideration received and the cumulative gains or losses recognized
directly in equity shall be recognized in profit or loss. Put simply, the profit or loss from the sale is
recognized in the income statement.
For more information about derecognition and the reversal of gains and losses recognized directly in
equity, please refer to the Sub Lecture Subsequent Measurement.
Challenge
Sometimes the sale of a financial instrument does not allow a complete derecognition. However,
Siemens no longer participates to the same extent as before the sale.
Continuing Involvement
In the event that Siemens has retained control and the risks and rewards of ownership have
neither been substantially transferred nor retained, Siemens shall continue to recognize the
financial asset to the extent of its continuing involvement. The extent of Siemens ’ continuing
involvement is the degree to which it is exposed to changes in the value of the transferred asset.

Example
Assuming that Siemens holds a debt instrument , e.g. a bond. The debt instrument is sold to a bank at
its fair value on the selling date, but with full recourse to Siemens for any default on the debt
instrument. This guarantee does not expire if the asset is sold again by the bank.
Analyzed using the decision tree, it is clear that the rights to the cash flows do not expire as the bond
has not yet matured. The contractual rights to the cash flows, i.e. interest payments and repayment,
have been transferred. Thus the guarantee provided by Siemens has the effect that Siemens has
retained some of the risks and rewards of the debt instrument. Furthermore, Siemens has not
assumed an obligation to pay the cash flows from the debt instrument, and some risks of ownership
still remain with Siemens. Therefore the risks and rewards of ownership have been neither
substantially transferred nor retained. As control has been transferred, Siemens derecognizes the
debt instrument and recognizes a contingent liability for the possible default.
Example
The following section provides some examples of the derecognition criteria.
Expiry of the Contractual Rights to the Cash Flows
Assume that, Siemens holds a debt instrument . After all the interest and repayments have been
received, Siemens no longer has any claim against the issuer of the debt instrument. The debt
instrument has to be derecognized.
Transfer of Contractual Rights to the Cash Flow and All the Risks and Rewards of Ownership
Assume that, Siemens sells the above mentioned debt instrument to a buyer before its maturity. The
buyer then assumes all the risks, e.g. the credit risk of the issuer, and all the rewards, e.g. the chance
of a decline in the market interest. The debt instrument must therefore be derecognized.
Transfer of Control
Assume that, Siemens holds a debt instrument. The debt instrument is sold so that the buyer achieves
control. However, Siemens is contractually obliged to compensate for any losses outside a 10%
corridor around the nominal value of the debt instrument. On the other hand, Siemens has the right to
receive the excess amount. The risks and rewards of ownership are neither completely transferred nor
retained, but control has been transferred. The debt instrument must be derecognized.
Nonetheless, Siemens has to recognize another financial instrument in this last case, which is a
derivative because its value changes in relation to the fair value of the debt instrument.

Sub Lecture: Initial Measurement

This Sub Lecture explains the initial measurement of available -for-sale financial assets. Initial
measurement means determining the amount at which the (financial) asset or liability is recognized in
Siemens’ balance sheet for the first time.
Initial Measurement of Available-for-Sale Financial Assets
Available-for-sale financial assets are measured initially at their fair value plus transaction costs
directly attributable to the acquisition.
Fair Value
The purchase price usually represents the fair value at the time of purchase . No fair value can be
derived from a purchase contract if available -for-sale financial assets become part of this category as a
result of reclassifications or if they are not acquired in an arm’s length transaction. In the latter case,
valuation techniques shall be applied to determine a fair value. For more information on the
determination of fair value please refer to the Details section.
Reclassifications
Financial assets, in particular equity instruments may not only become part of available -for-sale
financial assets directly through a purchase contract but also through the termination of the equity
method for investments in associates. An entity is referred to as an associate if Siemens has
significant influence on the operating and financial policies of that entity. An entity ceases to be an
associate if Siemens looses significant influence over it. This can be the case if Siemens sells some of
its interest but also through a diluting capital increase, i.e. the capital of the associated entity is
increased but the number of Siemens ’ shares remains constant.
Consequently, if Siemens looses significant influence, the application of the equity method shall
cease and the investment shall be treated as a financial asset . Usually, the remaining interest is
an available -for-sale financial asset, i.e. the investment is reclassified into this category.
The carrying amount of the investment at the date it ceases to be an associate shall be regarded
as its costs on initial measurement as an available-for-sale financial asset . This carrying amount
is not the fair value of the investment but is supposed to be a better estimate for the fair value than
the historical cost of the investment. This is due to the functionality of the equity method: the
(historical) purchase price which is normally the fair value at purchase date is adjusted by the
changes in equity of the associate. This context is also illustrated in the following graphic.

The difference between the carrying amount and the fair value is adjusted during the subsequent
measurement. A fair value in this situation is usually determinable, as Siemens has sold shares in an
arm’s length transaction . For more information on subsequent measurement please refer to the Sub
Lecture Subsequent Measurement.
For more information on the equity method, please refer to the Lecture Consolidation II which can be
accessed by clicking on the Lecture reference icon on the right.
Transaction Costs
For available -for-sale financial assets transaction costs are part of the acquisition costs as long as
they are directly attributable to the transaction. They are capitalized similar to the consideration
given, i.e. in most cases the cash paid for the available -for-sale financial asset.
For subsequent measurement of transaction costs please refer to the Sub Lecture Subsequent
Measurement. Please refer to the Details section for further details on transaction cost, e.g. which
costs are directly attributable or how retrospective purchase price changes are treated.

Detail: Determination of Fair Value

Explanation
Fair values are required for the initial and subsequent measurement of available-for-sale financial
assets. Fair value can usually be determined in two different ways: either the financial asset is quoted
in an active market or – if it is not quoted – a valuation technique is used.
Fair Value Hierarchy
The abovementioned ways of determining fair value are subject to a hierarchy. The quoted prices in
active markets provide the best evidence of fair value . If the market for an available -for-sale
financial asset is not active, the fair value shall be established using valuation techniques.
Quoted Market Price in an Active Market
An available -for-sale financial asset is regarded as quoted in an active market if quoted prices are
readily and regularly available from an exchange, dealer, broker, industry group, pricing service or
regulatory agency and these prices represent an actual and regularly occurring market transaction on
an arm ’s length basis.
If quoted market prices are available , they shall be used to measure available-for-sale financial
assets .
Valuation Techniques
The objective of a valuation technique is to establish what the transaction price would have been on
the measurement date in an arm ’s length exchange motivated by normal business
considerations . In other words, a valuation technique “reconstructs” an arm’s length transaction. On
the one hand, this is done by means of recent arm’s length market transactions between
knowledgeable, willing parties or reference to the current fair value of another instrument that is
substantially the same. On the other hand, discounted cash flow analysis and option pricing
models may also be used if they are accepted methods of determining a market price.
No Active Market for Equity Instruments
It is normally possible to estimate the fair value of an available -for-sale financial asset acquired from a
third party. However, if there is a significant range of reasonable fair value estimates, and
probabilities of the various estimates cannot be reasonably assessed, Siemens is precluded
from measuring the available -for-sale financial asset at fair value . In this case, the available -for-
sale financial asset is measured at cost .
Hence, if there is no active market for equity instruments, the following information shall be considered
in order to decide whether a reliably measurable fair value can be determined:
l data from market transactions, e.g. own (additional) or third-party purchases; or

l discounted cash flow calculations based on reliable internal planning for future cash flows.
It shall be determined quarterly whether a reliable fair value is available unless the financial asset is:
l an investment that is a non-consolidated affiliated company ; or

l an investment in an associated company that is not accounted for using the equity method and
where the acquisition costs are not higher than € 10m; or
l another investment whose acquisition costs are not higher than € 10m.
These investments are measured at acquisition costs .
No Active Market for Debt Instruments
As mentioned in the Sub Lecture Scope of Available -for-Sale Financial Assets, debt instruments that
are not quoted in active markets do not qualify as available-for-sale financial assets. Instead,
they fall into the category of loans and receivables.
Detail Summary
The following graphic provides a summary of the information given in the paragraphs above.

Detail: Determination of Acquisition Costs and Retrospective Purchase Price

Changes
Explanation
When Siemens purchases an available -for-sale financial asset there may be significant expenses in
negotiating and concluding agreement on acquisitions. These expenses are referred to as transaction
costs or incidental costs .
Components of Acquisition Costs
For available -for-sale financial assets, transaction costs are part of the acquisition costs as long as
they are directly attributable to the transaction . They are capitalized similar to the consideration
given, i.e. in most cases the cash paid for the available -for-sale financial asset.
The incidental costs can be broken down into two categories:
l Direct incidental acquisition costs, e.g. payments made to third parties for audit and legal
services related to the transaction are added to the consideration given and therefore increase
acquisition costs.
l Indirect incidental acquisition costs are costs which would have been incurred even without the
transaction and are – as they are not directly attributable – expensed as incurred. For example,
the internal costs for searching target companies are not directly attributable to the transaction
as they would have been incurred even if there was no transaction.
While transaction costs incur around the transaction date there may also be payments or other
adjustments to the purchase price related to the transaction occurring significantly after this date.
Retroactive Purchase Price Changes
The treatment of retroactive purchase price changes depends on whether an option for a future
adjustment has been agreed upon in the purchase contract . If so, this option qualifies as a
derivative and has to be separated from the available -for-sale financial asset. Derivatives are
categorized as at fair value through profit or loss and, in particular, as held for trading.
If the purchase price change is the outcome of subsequent negotiations without being stipulated
within the original purchase contract, it has to be treated as an adjustment to the acquisition
costs . Alternatively, the other components of equity (OCE) must be adjusted if the available -for-sale
financial asset has already been remeasured to the fair value on a subsequent measurement date.
The latter is discussed under Subsequent Measurement. For further information on subsequent
measurement, please refer to the Sub Lecture Subsequent Measurement.
The following decision tree illustrates the distinction described above.

Example
Assume that Siemens aims to achieve a continuing business relationship with the market leader in a
specific market segment of medical equipment. The Mergers and Acquisitions department therefore
prepares a short list of potential companies and, once the relevant management decisions have been
made, focuses on acquiring the selected company. The internal costs for searching target companies
amount to € 150,000. Another € 450,000 is incurred for legal and audit services during the bid phase.
The purchase price has finally been negotiated at € 11m.
Determination of Acquisition Costs
The acquisition costs include the consideration given and the transaction costs directly attributable to
the transaction. In this case, the acquisition costs are therefore € 11,450,000 (purchase price of € 11m
plus transaction costs of € 450,000). The costs for searching target companies are not directly
attributable to the transaction and are therefore expensed immediately.
Retrospective Purchase Price Change
Now assume that the internal cash flow plan turned out to be unrealistic. The purchase price
negotiations were based on this plan. Therefore the purchase price is renegotiated within the period of
purchase and Siemens and the seller agree on a repayment of € 1m.
The acquisition costs are therefore reduced by the repayment and finally amount to
€ 10,450,000.

Sub Lecture: Subsequent Measurement

Structure of the Sub Lecture
Subsequent measurement deals with the challenge of determining the amounts at which available-for-
sale financial assets are carried on the balance sheet dates subsequent to the acquisition date.
The structure of the Sub Lecture is explained first of all to provide an overview of the complexity of
subsequent measurement and its related concepts. The following graphic illustrates the flow of the
topics covered.
The graphic is extracted from the overall flow of the Lecture, which is also provided as a graphic zoom
on the right hand side. The Sub Lecture starts by explaining the subsequent measurement of available -
for-sale financial assets measured at fair value and those measured at cost. Secondly, the Sub Lecture
focuses on impairments, in particular how to identify the need for impairments and how to account for
them. The third topic discussed is the reversal of impairments, which deals with the question whether
an increase in the fair value of an impaired available -for-sale financial asset may be recognized
through profit or loss. The final part of the Sub Lecture deals with accounting for reclassification, i.e.
how to deal with step acquisitions where the investment becomes an associated company.
Available-for-Sale Financial Assets Measured at Fair Value
The sections regarding the subsequent measurement of available -for-sale financial assets measured
at fair value and those measured at cost are similarly structured. The main part of this section deals
with the treatment of fair value changes. This includes the recognition of income through interest or
dividend payments and the treatment of capitalized transaction costs. After that, some facts about
foreign currency translation are explained briefly.
Fair Value Changes
Available-for-sale financial assets where a fair value can be determined reliably have to be adjusted to
this value on each balance sheet date. The question therefore arises as to where these changes have

to be recognized, i.e. directly in equity or through profit or loss. As long as there is no impairment,
the fair value changes of equity and debt instruments carried as available -for-sale financial assets are
recognized in other components of equity (OCE). Impairments are discussed later on.
The following graphic shows the treatment of fair value changes in contrast to the at fair value
through profit or loss category . For further details on financial instruments at fair value through profit
or loss, please refer to the Sub Lecture Scope of Available -for-Sale Financial Assets.
Although both the fair value changes of an equity instrument and the fair value changes of debt
instruments are recognized in OCE, there is a difference: the recognition of fair value changes for debt
instruments is influenced by the recognition of interest. This issue will now be discussed further.
Equity Instruments - Dividends
Dividend payments received are income of the period and do not affect the fair value of an equity
instrument. This is contrary to the equity method, where dividend payments reduce the carrying
amount of the investment in the associate. This different treatment is due to the fact that the available -
for-sale financial asset represents an asset on its own and is not a part of the associate’s equity.
Therefore dividends reduce the equity on the entity’s balance sheet, but not the carrying amount of the
corresponding available -for-sale financial asset on Siemens’ balance sheet.
For more information on the application of the equity method, please refer to the Lecture Consolidation
II, which can be accessed by clicking on the Lecture reference icon on the right.
Dividends must be recognized as soon as the legal claim arises.
Debt Instruments - Interest
For debt instruments, interest payments are paid from the issuer to the holder, i.e. Siemens in this
Lecture. However, the interest income recognized in the financial statements of the holder may differ

from the payments received. This is due to the fact that the interest income has to be recognized using
the effective interest method.
Effective Interest Method
The effective interest method takes into account not only the interest payments but also all other
payments related to the debt instrument, e.g. transaction costs or discounts. The effective interest
rate allocates interest income to the periods, regardless of the point in time when they are
received (or paid). In the event of a zero coupon bond, the nominal amount is finally paid back at
maturity. However, interest income is recognized for each period in which the bond is held by Siemens.
The effective interest rate is the rate that exactly discounts estimated future cash payments or
receipts through the expected life of the financial instrument, or when appropriate, a shorter period, to
the net carrying amount of the financial asset or the financial liability. Exact discounting means that
the present value of all payments related to the debt instrument – acquisition costs, interest payments
and repayment – on the date of purchase is zero. Therefore, for available -for-sale financial assets,
interest income needs to be recognized using the historic effective interest rate.
The following example is for Expert users only. The example supports an understanding of the concept
explained above. However, due to the complexity of the journal entries related to practical cases
involving the recognition of effective interest and fair value changes, these are determined centrally by
SFS.
Example
Assume that Siemens acquires a bond at the end of year 1 with a remaining lifetime of four years to its
maturity. The bond has a nominal value of € 1,000. It was originally issued in year 0 at a nominal
interest rate of 5%. The purchase price for Siemens is € 1,037; no transaction costs have been
incurred. The purchase price therefore reflects the fair value at the time of acquisition. On the date of
acquisition, the market interest rate and therefore also the effective interest rate is 4%. If transaction
costs had been incurred for the purchase, they would have been reflected in the effective interest rate.
The following table shows the acquisition costs as well as the fair values of the periods and the interest
payments (amounts for the example are in € thousands).

Interest income has to be recognized in Siemens' financial statements according to the effective
interest method. For year 2, this is calculated as follows:
Interest income (effective interest) = Amortized costs (prior year) * Effective interest rate
= € 1,037 * 4% = € 41
Interest income is recognized as follows: Firstly, the difference between the actual interest payment
and the effective interest (this difference may also be negative) is added to the available -for-sale
financial asset. The available-for-sale financial asset is then carried at the amortized cost. The
following formula is used to calculate the amortized cost for year 2 is:
Amortized cost = Acquisition cost + Effective interest – Interest payments

= 1,037 + 41 – 50 = 1,028
For subsequent years, acquisition costs are replaced by the amortized cost at the prior year -end.
On the acquisition date, the fair value reflects the current market price for money, i.e. the interest rate.
Although a nominal interest of 5% has been agreed, the effective interest rate is the market interest
rate of 4% due to the fact that the fair value is higher than the nominal amount. This difference can be
seen as a prepayment of interest payments during the remaining lifetime of the bond. Therefore, from
an economic point of view, only the effective interest is interest income; the remaining difference
reduces the amortized costs. At the maturity of the bond, the whole “fee ” has been amortized in this
way.
After the recognition of interest income, the available -for-sale financial asset is adjusted to the
current fair value , i.e. the difference between the amortized costs and the fair value is recognized
in OCE. For year 2,

OCE = Fair value (year 2) – Amortized cost (year 2) = 1,057 – 1,028 = 29.
The OCE for years 3 and 4 is also calculated as the difference between the fair value on the balance
sheet date and the amortized costs on that date.
In year 3, the fair value equals the amortized costs. This is due to the fact that the market interest rate
in this period equals the effective interest rate of 4%. The OCE is zero, as there is a difference
between the fair value and the amortized cost. If there were no changes in the market interest rate
level, the fair value would equal the amortized costs over the lifetime of the bond.
The OCE therefore reflects two effects: the fair value changes are reflected on the one hand and, on
the other hand, the difference between the interest payments and the effective interest is “transferred”
into OCE after it has been charged against the available -for-sale financial asset.
In year 5, the debt instrument is derecognized as it is repaid by the issuer. The amounts stored in
OCE must also be derecognized. In period 5, the carrying amount of the available -for-sale financial
asset (the bond) is:
Amortized costs = Carrying amount of prior period – Actual interest + Effective interest =
= 991 – 50 + 40 = 981
The journal entries for the recognition of interest related to year 5 are therefore:
and for derecognition:
At the maturity of the bond, i.e. when the repayment is received, the total of the carrying amount,
i.e. the fair value at the end of year 4 adjusted by the difference between the interest payment and the
effective interest (981 = 991 + 40 – 50), and OCE at the end of year 4 equals the repayment. This is

due to the functionality of the effective interest method. At maturity, the “fee” for higher interest
payments has been fully amortized.
As the bond has been held to its maturity, only interest income has been reported in the income
statement. At the time of repayment, the fair value equals the nominal amount and the amortized cost.
Therefore a difference no longer exists and thus cannot be shown in OCE.
Treatment of Transaction Costs
Transaction costs are capitalized and are therefore part of the acquisition costs. On the subsequent
balance sheet date, the transaction costs become part of OCE as a result of fair value
measurement. The future treatment of available -for-sale financial assets also depends on whether
they are equity instruments or debt instruments.
For debt instruments, transaction costs are part of the cash payments and affect the effective
interest rate. They are therefore amortized through the application of the effective interest rate.
For equity instruments transaction costs are recognized through profit or loss when they are
derecognized or impaired .
Assume that Siemens has purchased equity shares in another entity worth € 1m. Transaction costs
were incurred in the amount of € 100,000 and the acquisition costs are therefore € 1,100,000. On the
subsequent balance sheet date, the fair value of the shares is still € 1,000,000. The carrying amount is
adjusted to the fair value and therefore an amount of € 100,000 is recognized in OCE as unrealized
loss. If the shares were sold during the next period for € 1,200,000, OCE would be reversed and the €
100,000 recognized as expense within accounting for the sale.
Foreign Exchange
An available -for-sale financial asset measured at fair value must be adjusted to the fair value
according to the spot rate on the balance sheet date. Gains and losses from the foreign currency
translation are basically carried as part of OCE. They are reclassified to net income on derecognition of
the asset. For an available -for-sale financial asset with a carrying amount in excess of € 20m, CF R 1
must be contacted.

Available-for-Sale Financial Assets Measured At Cost
A fair value cannot be determined reliably for available -for-sale financial assets measured at cost. Thus
no fair value changes can be accounted for. Furthermore, there are no debt instruments measured at
cost, as these would qualify as loans and not as available -for-sale financial assets.
Equity Instruments - Dividends
The treatment of dividends is similar to that described above for equity instruments measured at fair
value. Dividends received are income of the period and do not affect the carrying amount of the
equity instrument.
Treatment of Transaction Costs
Transaction costs are capitalized and are therefore part of the acquisition costs. As available -for-sale
financial assets measured at cost, they are recognized through profit or loss when the available -for-
sale financial asset is derecognized or impaired.
Foreign Exchange
Available-for-sale financial assets measured at cost are not adjusted to the spot rate on the balance
sheet date. Gains and losses from changes in value, including those arising from foreign currency
exchange, are recognized through profit or loss when the asset is derecognized or impaired.
After discussing the subsequent measurement of available -for-sale financial assets, the next section
focuses on impairments and the reversal of impairments. This section applies to both available -for-sale
financial assets measured at fair value and those measured at cost.
Impairments

An available -for-sale financial asset has to be assessed on each balance sheet date to determine
whether there is any objective evidence that an available-for-sale financial asset is impaired.
Triggering Events
An available -for-sale financial asset is impaired if there is objective evidence of impairment as a result
of one or more events that occurred after the initial recognition of the asset. This so -called loss event
or triggering event has an impact on the estimated future cash flows of the financial asset.
At Siemens, a significant or prolonged decline in the fair value below its costs is also objective
evidence of impairment and is assumed if the fair value of an investment in another entity is lower
than its acquisition costs for six months or if the decrease in the fair value is higher than 20% of
the asset’s acquisition costs.
For more information on triggering events, please refer to the Details section.
Recognition of Impairments
The impairment is recognized through profit or loss. This means that the carrying amount of the
asset is adjusted to the fair value. At Siemens, any unrealized losses recognized in OCE are first
reversed against the asset. Then the full impairment loss is recognized in the income statement as
expense.
Future decreases in the fair value of an available -for-sale financial asset once impaired are always
treated as impairment. If the fair value of an available -for-sale financial asset increases after an
impairment, the question arises as to whether the impairment shall be reversed, i.e. whether the
increase in the asset’s fair value shall be recognized through profit or loss.
Reversal of Impairment
The reversal of impairment through profit or loss is not permitted for equity instruments. This
means that future increases in the fair value of available -for-sale financial assets subsequent to

impairment have to be recognized in OCE. This is illustrated in the following graphic.
The regulation for the reversal of impairment is consistent with other balance sheet line items, such as
property, plant and equipment or inventories. Impairments for these items may be reversed through
profit or loss if there is objective evidence for the increase in fair value. For equity instruments,
reversals of impairment losses cannot be distinguished from other increases in fair value. Therefore
equity instruments are excluded.
There is only one exception to this rule. If, in a subsequent period, the fair value of a debt instrument
increases and the increase can be related objectively to an event occurring after the impairment loss
was recognized in profit or loss, an impairment must be reversed and the amount of the reversal
recognized in profit or loss if it is material (more than € 1m).
Example of Subsequent Measurement
The following section provides a detailed example to illustrate the information regarding the reversal of
impairments.
Assume that Siemens has acquired equity shares in another entity. The shares are quoted in an active
market. Therefore the fair value of the shares can be determined reliably. The acquisition costs are €
100m. The following graphic shows the development of the fair value and the amounts recognized in
OCE and through profit or loss (figures in €m).

On the first subsequent measurement date, the fair value has increased by € 30m. This increase is
recognized in OCE. On the second subsequent measurement date, a triggering event for impairment
occurs. The amount stored in OCE is reversed. The impairment loss of € 25m is recognized through
profit or loss.
The journal entry for the reversal of OCE against the available -for-sale financial asset is:
The journal entry for the impairment is:

On the third subsequent measurement date, the fair value increases. The increase is reflected in OCE
as the impairment may not be reversed through profit or loss. Finally, the available -for-sale financial
asset is sold and is therefore derecognized. The sales price is € 110m. For the overall case, a profit of
€ 10m has to be recognized. As an amount of € 25m has been expensed for impairment, the sale
results in a profit of € 35m.
Reclassification
Assume that the equity instruments have not been sold but additional ones have been acquired. In this
case, Siemens may achieve significant influence over the other entity. This means that the investment
begins to qualify as an associate and has to be consolidated using the equity method.
If an investment ceases to qualify as an available-for-sale financial asset because it becomes an

investment in an associate or a subsidiary, this is referred to as a step acquisition. Applying
consolidation , goodwill has to be calculated separately for each transaction. Therefore, for each
transaction, goodwill is calculated by reducing the historical net assets at fair value by the historical
acquisition costs.
In order to trace the carrying amount back to the historic acquisition costs, any changes to the carrying
amount of the previous available -for-sale financial asset have to be reversed. In particular, OCE has to
be reversed within the balance sheet . In the event that the available -for-sale financial asset has
been impaired, the impairment is also reversed but the reversal is always recognized in OCE as the

reversal of a remeasurement and does not affect income.
For more information on step acquisitions, please refer to the Lecture Consolidation II, which can be
accessed by clicking the Lecture reference icon on the right.

Detail: Triggering Events for Impairment

Explanation
An available -for-sale financial asset is impaired if there is objective evidence of impairment as a result
of one or more events that occurred after the initial recognition of the asset. This so -called loss event
or triggering event has an impact on the estimated future cash flows of the financial asset.
Objective evidence of impairment includes observable data regarding the following loss events:
l The issuer experiences significant financial difficulty.
l There is a breach of contract, such as a default or delinquency in interest or principal payments.
l The holder, for economic or legal reasons relating to the issuer’s financial difficulty, grants the
issuer a concession that the holder would not otherwise consider.
l It becomes probable that the issuer will enter bankruptcy or other financial reorganization.
l Financial difficulties result in the disappearance of an active market for that financial asset.
l There is observable data indicating a measurable decrease in the estimated future cash flows
from a group of financial assets since the initial recognition of those assets, although the
decrease cannot yet be identified with the individual financial assets in the group.
At Siemens, impairment is assumed if the fair value of an investment in another entity is lower
than its acquisition costs for six months or if the decrease in the fair value is higher than 20%
of the asset’s acquisition costs.
Example
Impairment
Assume that Siemens holds a bond issued by Findist plc. Interest payments have been delayed for
three months and the rating of Findist plc has continuously worsened. Finally, the debt instruments are
taken out of trading. In this case, a loss event is likely to have occurred. Although no single event has
caused the impairment on its own, there is no doubt that the debt instrument is impaired.
No Impairment
Assume that Siemens holds a bond issued by Lucky -Devil Inc. The nominal interest of the bond is
3.5%, but the market interest rate increased to 5% in the second year after the issuance. Therefore the
fair value of the bond decreases.
The future cash flows related to this debt instrument are not affected by the increase in the market
interest rate. Therefore no impairment has taken place; a loss event may have occurred but this has
no impact on the future cash flows.

Sub Lecture: Presentation and Disclosure Requirements

This Sub Lecture gives an overview of the presentation of available -for-sale financial assets and their
most important disclosures.
Presentation
Within Siemens’ balance sheet, available -for-sale financial assets are presented in two places: as a
separate line item under current assets and within other financial assets under non-current assets. The
following graphic shows an extract of Siemens’ balance sheet, highlighting the relevant line items.
Within Siemens’ income statement, income from available -for-sale financial assets is presented as
income from available -for-sale financial assets, net within the line item financial income, net. This line
item includes both current and non-current assets. The following graphic shows an extract from
Siemens’ income statement, highlighting the relevant line item. A further breakdown of this line item,
showing the single amount from available-for-sale financial assets, is shown within the Notes.

For an overview of the different components of financial income, net, please refer to the Lecture
Balance Sheet, Income Statement, which can be accessed by clicking on the Lecture reference icon on
the right.
Unrealized gains and losses on available -for-sale financial assets are shown net within other
components of equity. The following graphic shows an extract from Siemens’ consolidated statement of
income and expenses recognized in equity, highlighting the relevant line item.
Disclosure Requirements
As well as presentation, the necessary disclosures are important under IFRS. For available -for-sale
financial assets, it is necessary to provide their total amount, i.e. all available -for-sale financial
assets included in the line items named above as well as the amount of those measured at fair value
and those measured at cost .

Siemens shall disclose the amounts of any impairment and the net gains or net losses from available -
for-sale financial assets. The following information shall be shown separately:
l The amount of gain or loss recognized directly in equity during the period
l The amount removed from equity and recognized in profit or loss for the period
As well as qualitative disclosures, such as the criteria for designating financial assets as available for
sale or the methods used to measure fair value, additional quantitative disclosures have to be made.
For available -for-sale financial assets, Siemens discloses the impact on net income of a 20% decline in
the fair value of all equity instruments held. This risk is referred to as equity price risk .
If an available -for-sale financial asset has been transferred in such a way that part or all of the asset
does not qualify for derecognition , the following disclosure is required:
l The nature of the risks and rewards of ownership to which Siemens remains exposed
l When Siemens continues to recognize all of the assets: the carrying amounts of the assets and
of the associated liabilities
l When Siemens continues to recognize the assets to the extent of its continuing involvement: the
total carrying amount of the original assets, the amount of the assets that the entity continues to
recognize, and the carrying amount of the associated liabilities
Source of Information
The relevant information for the disclosures is provided through the journal entries and the financial
statement accounts concerning available -for-sale financial assets. Accurate accounting, in particular
the usage of the correct accounts, is crucial.
Additional data has to be reported by means of Corporate Information on Siemens Subsidiaries (CISS).
Corporate Information on Siemens Subsidiaries (CISS)
CISS is a centralized, web-based data entry application for reporting information on Siemens ’
subsidiaries. In CISS, subsidiary management processes are reflected, such as the master data for
commercial laws. Several systems are connected to CISS (e.g. the software for Siemens’ corporate
group consolidation ESPRIT ), which download certain data directly from CISS. CISS is therefore a
Master Data Warehouse for the whole Siemens group.

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Siemens Finance Training - eBook V0048

Available-for-Sale Financial Assets

Within this Lecture, the following Sub Lectures will be covered:

Page 1 of 36 - Version from August 2010 © Siemens 2010

category of available -for-sale financial assets.

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Sub Lecture: Introduction

What is the Aim of Available-for-Sale Financial Assets?

Why are Available -for-Sale Financial Assets Important for Siemens?

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Sub Lecture: Scope of Available -for-Sale Financial Assets

Definition of Financial Instruments

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Categories of Financial Instruments

The following section gives a brief explanation of each category.

At Fair Value through Profit or Loss

A financial asset is held for trading if it is:

Loans and Receivables

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l that Siemens designates as available -for-sale financial assets; or

Available-for-Sale Financial Assets

Current and Non -Current Available-for-Sale Financial Assets

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Distinction Between Available-for-Sale Financial Assets and Cash Equivalents

Difference Compared to Derivatives

Focus of the Lecture

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The following graphic illustrates the scope of the Lecture.

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Sub Lecture: Recognition and Derecognition

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For more information on derecognition, please refer to the Details section.

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Criteria for the Derecognition of an Available-for-Sale Financial Asset

An available -for-sale financial asset shall be derecognized if:

l the contractual rights to the cash flows expire;

The following graphic illustrates these statements and their context.

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Accounting for the Derecognition of an Available-for-Sale Financial Asset

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The following section provides some examples of the derecognition criteria.

Expiry of the Contractual Rights to the Cash Flows

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Sub Lecture: Initial Measurement

Initial Measurement of Available-for-Sale Financial Assets

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Detail: Determination of Fair Value

Fair Value Hierarchy

Quoted Market Price in an Active Market

No Active Market for Equity Instruments

l data from market transactions, e.g. own (additional) or third-party purchases; or

l an investment that is a non-consolidated affiliated company ; or

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These investments are measured at acquisition costs .

No Active Market for Debt Instruments

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Detail: Determination of Acquisition Costs and Retrospective Purchase Price

Components of Acquisition Costs

The incidental costs can be broken down into two categories:

Retroactive Purchase Price Changes

The following decision tree illustrates the distinction described above.