BASF Report 2021 Consoli dated Financial Statements – Notes 204 Use of estimates and assumptions in preparing the testing. It comprises a risk-free interest rate, the market risk premium Climate policies are also causing fundamental changes in the Consolidated Financial Statements and an industry-specific spread for the credit risk. Additional automotive industry, one of BASF’s key customer industries. The important assumptions are the forecasts for the detailed planning transition to electromobility will have a long-term negative impact The carrying amount of assets, liabilities and provisions, contingent period and the terminal growth rates used. Fair value less costs to on the emissions catalyst business. This development was liabilities and other financial obligations reported in the Consolidated sell must be determined for the impairment test of disposal groups; accounted for in the adjustment of the growth rate for the goodwill Financial Statements depends on the use of estimates, assumptions specific assumptions relating to the respective transaction must be impairment test and did not lead to an impairment. Other BASF and discretionary scope. Specific estimates or assumptions used in made for this determination. businesses will benefit from this transformation; for example, individual accounting or valuation methods are disclosed in their For more information, see Note 3 from page 207 onward and Note 14 from page 236 onward demand for innovative lightweight materials and battery materials respective sections of the Notes to the Consolidated Financial will grow. Furthermore, climate policies can influence the business Statements. They are based on the circumstances and estimates on An impairment is recognized if the recoverable amount of the asset of oil and gas producers such as Wintershall Dea, which BASF the balance sheet date and thus affect the amounts of income and is lower than the carrying amount. The impaired asset (excluding accounts for using the equity method. Nevertheless, given the large expenses shown for the reporting periods presented. These goodwill) is written down by the amount of the difference between share of gas in Wintershall Dea’s production and reserves as well as assumptions primarily relate to the determination of discounted these amounts. the acceptance of gas as a bridge technology, it can be assumed cash flows in the context of impairment tests and purchase price that these assets are fundamentally recoverable. The price allocations; the useful lives of depreciable property, plant and The goodwill impairment test is based on cash-generating units. At assumptions applied for the impairment test reflected current equipment and intangible assets; the carrying amount of BASF, these largely correspond to the business units, or in individual developments regarding climate neutrality as well as a possible oil shareholdings; and the measurement of provisions for items such as cases the divisions. If there is a need for impairment, the existing and gas shortage due to lack of investment in this industry. employee benefits, warranties, trade discounts, environmental goodwill is, if necessary, completely written off as a first step. If there For more information on climate and sustainability, see Wintershall Dea’s annual report at protection and taxes. Although uncertainty is appropriately is further need for impairment, this is allocated to the remaining wintershalldea.com/en/investor-relations incorporated in the valuation factors, actual results can differ from assets of the cash-generating unit. Goodwill impairments are these estimates. reported under other operating expenses. Impairment tests on assets are carried out whenever certain Climate and sustainability-related developments: The chemical triggering events indicate potential impairment. External triggering industry is resource-intensive. BASF is committed to the Paris events include, for example, changes in customer industries, Climate Agreement: Using resources as efficiently and responsibly technologies used and economic downturns. Internal triggering as possible and the concept of a circular economy are firmly events for an impairment test include lower product profitability, embedded in BASF’s strategy and its actions, supported by the planned restructuring measures or physical damage to assets. Verbund structure, clearly defined ambitious targets for reducing Impairment tests entail a comparison of the carrying amount and the CO, and the use of renewable and recycled feedstocks. BASF 2 recoverable amount. The recoverable amount is the higher of fair always strives to employ raw materials more efficiently and improve value less costs to sell and the value in use. As a rule, value in use is production processes as well as to continuously seek ways to use determined using the discounted cash flow method. The estimation non-fossil, renewable or recycled feedstocks. For this reason, of cash flows and the assumptions used consider all information current developments and measures relating to climate change and available on the respective balance sheet date on the future sustainability do not lead to fundamentally changed expectations development of the operating business. Actual future developments with regard to useful lives or recoverability of the majority of may vary. Impairment testing relies upon the cash-generating unit’s noncurrent assets. There is also no material need for adjustments to long-term earnings forecasts, which are based on macroeconomic provisions for environmental and restoration obligations. In individual trends. The weighted average cost of capital (WACC) based on the cases, however, plants may be shut down if necessary for reasons capital asset pricing model plays an important role in impairment of environmental protection.