Acquired intangible assets are recognized at cost and are classified as assets with finite and indefinite useful lives. Self-developed intangible assets are only capitalized if the requirements specified by IAS 38 have been met. Intangible assets with indefinite useful lives acquired in the course of business combinations are recognized at fair value on the acquisition date. Intangible assets with indefinite useful lives are not amortized, however they are tested for impairment when a triggering event arises or at least once a year. Goodwill is allocated to cash-generating units and tested for impairment either annually or if there are indications of impairment. A cash-generating unit is a division as presented in the Segment Reporting. The carrying amounts of the cash-generating units are compared with their recoverable amounts and impairment losses are recognized where the recoverable amount is lower than the carrying amount. The recoverable amount of a cash-generating unit is determined as the higher of fair value less costs to sell and value in use estimated using the discounted cash flow method. When testing for potential goodwill impairments, Merck determines the recoverable amount by discounting expected cash flows and therefore uses the value-in-use method. Reference is made to existing forecasts. Among other things, market observations, and – if available – market data, constant target-actual deviations, detailed plans as well as past experience form the basis for cash flow forecasts. Above all, assumptions on existing and future customers, future realizable selling prices and volumes and corresponding costs are made. The existing plans normally cover a period of four years. Cash flows for periods in excess of this are included using an individualized long-term growth rate for the specific cash-generating unit.
In the business plan, a long-term growth rate of 2.8% was used to measure the goodwill of the Merck Millipore division (2011: 2.8%). The long-term growth rates used for the other divisions are as follows: Merck Serono 1.5% (2011: 1.5%), Consumer Health 2.5% (2011: 2.5%) and Performance Materials 1.0% (2011: 1.0%). The use of division-specific long-term growth rates is suited to taking the specific business and the imminent growth prospects thereof into account.
The expected future cash flows were discounted using a weighted average cost of capital (WACC) of 7.0% (2011: 7.0%). A 10% reduction in future cash flows was assumed when calculating sensitivity, furthermore sensitivities were calculated for the case that the weighted average cost of capital increases by 10%. We regarded greater volatility as unlikely based on our experience. Even if the actual future cash flows were 10% lower than the expected cash flows, there would be no need to record impairment losses for goodwill. Likewise, there would be no need to record impairment losses if future cash flows were discounted by a weighted average cost of capital that was 10% higher.
Intangible assets with indefinite useful lives are tested for impairment individually and annually. The carrying amounts are compared with the recoverable amounts. Impairment losses recognized on indefinite-lived intangible assets other than goodwill are reversed if the original reasons for impairment no longer apply.
Intangible assets with a finite useful life are amortized using the straight-line method. The useful lives of acquired patents, licenses and similar rights, brand names, trademarks and software are between 3 and 15 years. Amortization of intangible assets other than software is reported in a separate line item in the income statement. This item primarily comprises amortization in connection with the Serono and Millipore purchase price allocations. Amortization of software is allocated to the functional costs in the income statement. An impairment test is performed if there are indications of impairment. Impairment losses are determined using the same methodology as for indefinite-lived intangible assets. Impairment losses are reversed if the original reasons for impairment no longer apply.
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