BASF Report 2021 Consoli dated Financial Statements – Notes 202 1.3 Group accounting principles In addition to BASF SE, the Consolidated Financial Statements Transactions between consolidated companies as well as include all material subsidiaries on a fully consolidated and all intercompany profits resulting from trade between consolidated Scope of consolidation: The scope of consolidation is based on material joint operations on a proportionally consolidated basis. companies are eliminated in full. Sales and material other balances the application of the standards IFRS 10 and 11. Companies whose business is dormant or of low volume, and are of and transactions between joint operations and fully consolidated minor importance for the presentation of a true and fair view of the Group companies are also eliminated. Material intercompany profits According to IFRS 10, a group consists of a parent entity and the net assets, financial position and results of operations, are not related to companies accounted for using the equity method are subsidiaries controlled by the parent. “Control” of an investee consolidated, but rather are reported under other shareholdings. eliminated. assumes the simultaneous fulfillment of the following three criteria: These companies are carried at amortized cost and are written – The parent company holds decision-making power over the down in the case of an impairment. The aggregate assets and equity Capital consolidation is conducted at the acquisition date according relevant activities of the investee of these companies amount to less than 1% of the corresponding to the purchase method. Initially, all assets, liabilities and additional – The parent company has rights to variable returns from the value at Group level. intangible assets that are to be capitalized are measured at fair value investee regardless of the scope of any noncontrolling interests. Subse- – The parent company can use its decision-making power to affect Joint ventures and associated companies are accounted for using quently, the cost of acquiring the company is compared with the the variable returns the equity method in the Consolidated Financial Statements. proportional share of the fair value of the net assets acquired. The Associated companies are entities that are not subsidiaries, joint resulting positive differences are capitalized as goodwill. Negative Based on corporate governance structures and any additional ventures or joint operations, and over whose operating and financial differences are reviewed once more, then recognized directly in the agreements, companies are analyzed for their relevant activities and policies significant influence can be exercised. In general, this income statement. variable returns, and the link between the variable returns and the applies to companies in which BASF has an investment of between extent to which their relevant activities could be influenced. 20% and 50%. Associated companies and joint ventures that are Noncontrolling interests are measured at fair value at the date of fully or predominantly allocated to operating divisions are classified acquisition proportional to the assets acquired and liabilities According to IFRS 11, which regulates the accounting of joint as integral because they are integrated into the value chain of the assumed (partial goodwill method). arrangements, a distinction must be made between joint ventures respective division; are controlled by the divisions; and they generate and joint operations. In the case of a joint venture, the parties that their income in close cooperation with the other assets of the BASF The incidental acquisition costs of a business combination are have joint control of a legally independent company have rights to Group and/or of these divisions. Equity-accounted income from recognized in the income statement under other operating the net assets of that arrangement. In joint operations, the parties integral joint ventures or associated companies is reported as part of expenses. that have joint control have direct rights to the assets and obligations income from operations (EBIT). For more information, see Note 13 on page 235 for the liabilities relating to the arrangement. This requirement is particularly fulfilled if the production output of the joint arrangement Equity-accounted income from non-integral joint ventures or is almost entirely transferred to the partners, through which the associated companies is reported in net income from shareholdings. partners guarantee the joint arrangements’ ongoing financing. For more information, see Note 10 from page 225 onward Companies whose corporate governance structures classify them Consolidation methods: Assets and liabilities of consolidated as joint arrangements are analyzed to determine if they meet the companies are uniformly recognized and measured in accordance criteria for joint ventures or joint operations in accordance with with the principles described herein. For companies accounted for IFRS 11. Should the arrangement be structured through a separate using the equity method, material deviations in measurement vehicle, its legal form, contractual arrangements and all other facts resulting from the application of other accounting principles are and circumstances are reviewed. adjusted.