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Allianz Annual Report 2013

D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of Changes in Equity 131 Consolidated Statements of Cash Flows 134 Notes to the Consolidated Financial Statements Annual Report 2013    Allianz Group 139 anticipated in the future from insurance contracts in force at the date of acquisition. It is amortized over the life of the related contracts. Deferred sales inducements Sales inducements on insurance contracts are deferred and amor- tized using the same methodology and assumptions as for deferred acquisition costs when they meet the following criteria: the sales inducements are recognized as part of the reserves, are explicitly identified in the contract at inception and incremental to amounts credited on similar contracts without sales inducements and higher than the contract’s expected ongoing crediting rates for periods after the inducement. Shadow accounting For insurance contracts and investment contracts with discretionary participation features, shadow accounting is applied to DAC, PVFP and deferred sales inducements in order to include the effect of unre- alized gains or losses in the measurement of these assets in the same way as it is done for realized gains or losses. Accordingly, the assets are adjusted with corresponding charges or credits recognized directlyinothercomprehensiveincomeasacomponentoftherelated unrealized gain or loss. When the gains or losses are realized, they are recorded in the income statement through recycling and prior adjustments due to shadow accounting are reversed. DEFERRED TAX ASSETS The calculation of deferred tax assets is based on tax loss carry for- wards, unused tax credits and on temporary differences between the ­Allianz Group’s carrying amounts of assets or liabilities in its con- solidated balance sheet and their tax bases. The tax rates used for the calculation of deferred taxes are the local rates applicable in the countries concerned; changes to tax rates which have been substan- tively enacted prior to or as of the consolidated balance sheet date are taken into account. Deferred tax assets on losses carried forward are recognized only to the extent it is probable that sufficient future taxable income will be available for their realization. Please refer to note 3, where the processes and controls for ensur- ing an appropriate use of estimates and assumptions are explained. OTHER ASSETS Other assets primarily consist of receivables, accrued dividends, interest and rent as well as own-used property and equipment. Receivables are generally recorded at face value less any pay- ments received, net of valuation allowances. Own-used property and equipment generally is carried at cost less accumulated depreciation and impairments. The assets are depreciated on a straight-line basis over their estimated useful lives. Software, which includes software purchased from third parties or developed internally, is initially recorded at cost and amortized on a straight-line basis over the estimated useful service lives or contrac- tual terms. The ­Allianz Group also records the fixed assets of its fully con- solidated private equity investments and alternative investments within property and equipment. These assets are carried at cost less accumulated depreciation and impairments. Depreciation is gener- ally computed using the straight-line method over the estimated use- ful lives of the assets. The table below summarizes estimated useful lives for real estate held for own use, equipment, software and fixed assets of alter- native investments. ESTIMATED USEFUL LIVES (IN YEARS) Years Real estate held for own use max. 50 Software 2 – 10 Equipment 2 – 10 Fixed assets of alternative investments 4 – 25 INTANGIBLE ASSETS Intangible assets with indefinite useful lives mainly consist of good- will resulting from business combinations. It is initially recorded at cost and subsequently measured at cost less accumulated impair- ments. Goodwill is allocated to each of the ­Allianz Group’s cash gener­ ating units expected to benefit from the business combination. The ­Allianz Group conducts an annual impairment test of goodwill dur- ing the fourth quarter or more frequently if there is an indication that goodwill is not recoverable. The impairment test includes comparing the recoverable amount to the carrying amount, including goodwill, ofallrelevantcashgeneratingunits.Acashgeneratingunitisimpaired if the carrying amount is greater than the recoverable amount. The impairment amount is allocated to first reduce any goodwill, followed by allocation to the carrying amount of any remaining non-financial assets of the cash generating unit. Impairments of goodwill are not reversed. Gains or losses realized on the disposal of subsidiaries include any related goodwill. Intangible assets with finite useful lives primarily consist of dis- tribution agreements. They are initially recorded at cost which gener- ally is the purchase price plus directly attributable costs or, when acquired with business combinations, at fair value if the intangible asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably. Distribution agreements are subsequently recorded at cost less accumulated depreciation and impairments. The assets generally are depreciated on a straight-line basis over their useful lives or contractual term. Please refer to note 3, where the processes and controls for ensuring an appropriate use of estimates and assumptions are explained.

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