[5] Accounting and measurement principles Audited

With the exception of the changes described in the following, the accounting and measurement principles have remained unchanged in comparison with the previous year.

In June 2011, the IASB approved the amended version of IAS 19 “Employee Benefits,” which was adopted by the EU in June 2012. The revised standard is applicable to annual periods beginning on or after January 2013. Merck made use of the possibility to adopt the standard earlier, and has been applying the rules contained in IAS 19 (2011) since January 1, 2012. At Merck, the changes that the amended standard involve related in particular to expected returns on plan assets, the treatment of past service cost as well as top-up amounts within the context of partial retirement agreements. The new rules are to be applied retroactively. Consequently, the balances brought forward to January 1, 2011, the figures reported in the previous year as well as the balances brought forward to January 1, 2012 were adjusted and stated on a comparable basis. Owing to the retroactive adjustments made, the opening balances as of January 1, 2011 changed in the balance sheet as follows: Net defined benefit assets (other current assets) increased by € 1.8 million, provisions for employee benefits (“long-term provisions”) declined by € 7.3 million, and provisions for pensions and other post-employment benefits increased by € 3.4 million. Taking deferred taxes into consideration, this led overall to an increase of € 4.8 million in stockholders’ equity as of January 1, 2011. The adjustment of the income statement for the period from January 1 to December 31, 2011 led to an increase of € 4.8 million in expenses and adversely affected the financial result by € 7.5 million. Taking deferred taxes into consideration, this reduced profit after tax by € 11.0 million and earnings per share by € 0.05. Equity as of December 31, 2011 increased by a total of € 0.9 million as a result of the adjustments.

Moreover, the method used to charge expenses for Group functions of Merck KGaA to functional expenses was modified in fiscal 2012. Whereas in the past, these expenses were also recorded under functional expenses in the income statement, they are now included under administration expenses. The Group functions affected in particular are those that perform legal, financial and organizational tasks to administer the Group. The income statement for 2011 was adapted for comparability reasons. In connection with the amended allocation of expenses for Group functions to functional expenses, their allocation to the operating divisions was also modified within the scope of segment reporting. These expenses are fully disclosed outside of the operating segments. For comparability reasons, the previous year’s figures in the segment report were adjusted.

As of fiscal 2012, “exceptional items” are no longer disclosed in the income statement. The disclosures made under this item in the previous year were allocated to “other operating expenses and income” in accordance with their nature. Due to the allocation of exceptional items, the operating result and earnings before interest and tax (EBIT) are now identical.

Overall, the individual topics had the following impact on the presentation of the income statement: