15 – Property, Plant and Equipment

Accounting policies

Property, plant and equipment are measured at cost less depreciation and impairment over their useful lives. The revaluation method is not applied. Low-value assets are fully expensed in the year of acquisition.

The cost of self-constructed plants includes direct costs, appropriate allocations of material and production overhead costs, and a share of the general administrative costs of the divisions involved in the construction of the plants.

Expenditures related to the scheduled maintenance of large-scale plants are capitalized separately and depreciated using the straight-line method over the period until the next planned turnaround. Costs for the replacement of components are recognized as assets if an additional future benefit is expected. The carrying amount of the replaced components is derecognized. Costs for maintenance and repair as part of normal business operations are recognized as an expense.

Both movable and immovable fixed assets are principally depreciated using the straight-line method. The estimated useful lives and depreciation methods of property, plant and equipment are based on historical values, plans and estimates. The depreciation methods, useful lives and residual values are reviewed at each balance sheet date.

BASF began applying the new standard IFRS 16 – Leases as of January 1, 2019. As lessee, BASF generally recognizes for all leases right-of-use assets and lease liabilities in the balance sheet at the present value of financial commitments entered.

Impairments to property, plant and equipment are recognized if the recoverable amount of the asset is lower than the carrying amount. The measurement is based on fair value less costs to sell or the value in use. The value in use is determined on the basis of future cash inflows and outflows, and the weighted average cost of capital after taxes, depending on tax rates and country-related risks. An impairment is recognized for the difference between the carrying amount and the recoverable amount. If the reasons for an impairment no longer exist, the write-downs are reversed up to the value of the asset, had an impairment not been recognized.

Investment properties held to realize capital gains or rental income are immaterial. They are valued at the lower of fair value or cost less depreciation.

The weighted average depreciation periods of continuing operations were as follows:

The decrease in weighted average depreciation periods for buildings and structural installations resulted primarily from the addition of lease assets in accordance with IFRS 16.

Borrowing costs: If directly incurred as part of the acquisition, construction or production of a qualifying asset are capitalized as part of the acquisition or production cost of that asset. A qualifying asset is an asset for which the process necessary to make it ready for its intended use or sale is longer than one year. Borrowing costs are capitalized up to the date the asset is ready for its intended use. The borrowing costs were calculated based on a rate of 1.5% (previous year: 1.5%) and adjusted on a country-specific basis, if necessary. All other borrowing costs are recognized as an expense in the period in which they are incurred.

Government grants: Government grants related to the acquisition or construction of property, plant and equipment reduce the acquisition or construction cost of the respective assets. Other government grants or government assistance are recognized immediately as other operating income or treated as deferred income and released over the underlying period.

Additions to property, plant and equipment arising from investment projects (excluding leases) amounted to €3,390 million in 2019. Investments were made at the following sites in particular: Ludwigshafen, Germany; Antwerp, Belgium; Shanghai, China; Geismar, Louisiana; and Freeport, Texas. Material investments included the acetylene plant as well as the expansion of the vitamin A plant in Ludwigshafen, Germany. Furthermore, additions included renovations and major repairs to the steam cracker and the construction of a new propane tank in Antwerp, Belgium. Investments also included the upgrade and capacity expansion of the MDI synthesis unit in Geismar, Louisiana. Government grants for funding investment measures reduced asset additions by €9 million.

In 2019, impairments of €315 million and reversals of impairments of €6 million were included in accumulated depreciation. The impairments were primarily attributable to construction in progress resulting from discontinued investment projects in North America within the Petrochemicals segment. Furthermore, impairments on buildings and technical equipment at one production site in Europe were also included in accumulated depreciation.

Disposals of property, plant and equipment included the sale of a building complex in Switzerland.

Transfers related mainly to the reclassification of operation-ready assets from construction in progress to other asset categories. Transfers also included reclassification of existing finance leases as of December 31, 2018 to right-of-use assets due to the initial application of IFRS 16.

Transfers to disposal groups included property, plant and equipment, which had been reclassified to the disposal groups for the pigments business and the construction chemicals business.

Currency effects raised property, plant and equipment by €190 million and resulted mainly from the appreciation of the U.S. dollar against the euro.

In 2018, machinery and technical equipment contained oil and gas deposits, including related wells, production facilities and further infrastructure, which were depreciated according to the unit of production method. The table presents the development of property, plant and equipment including these assets until the oil and gas business was transferred to the disposal group.

Additions to property, plant and equipment arising from investment projects amounted to €3,615 million in 2018. Investments were primarily made at the sites in Ludwigshafen, Germany, Antwerp, Belgium, Shanghai, China, Geismar, Louisiana and Freeport, Texas. Material investments included the acetylene plant as well as plants for the production of catalysts in Ludwigshafen, Germany. Furthermore, additions included renovations to the steam cracker and the construction of a new propane tank in Antwerp, Belgium. Other investments included the construction of oil and gas facilities and wells in Europe and South America.

Government grants for funding investment measures reduced asset additions by €26 million.

Acquisitions led to an increase in property, plant and equipment in the amount of €1,425 million, primarily from the acquisition of significant parts of Bayer’s seed and non-selective herbicide businesses and its vegetable seeds business.

In 2018, impairments of €52 million and reversals of impairments of €1 million were included in accumulated depreciation. The impairments were primarily attributable to construction in progress resulting from discontinued investment projects in North America.

Disposals of property, plant and equipment included the sale of production plants for oleochemical surfactants in Mexico and the production site for styrene butadiene-based paper dispersions in Pischelsdorf, Austria.

Transfers related mainly to the reclassification of operation-ready assets from construction in progress to other asset categories.

Currency effects raised property, plant and equipment by €277 million and resulted mainly from the appreciation of the U.S. dollar against the euro.