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.

Expenses 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.

As lessee, BASF generally recognizes all leases in the balance sheet. The right-of-use assets from leases and lease liabilities are measured at the present value of the financial commitments entered into.

• For more information on leases, see Note 16

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.

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.

The weighted average depreciation periods were as follows:

If there is indication of a possible cause for impairment, an impairment test is performed. 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. 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. Impairments and reversals of impairments are reported in other operating income and expenses.

• For more information on the value in use and the weighted cost of capital rate, see Note 1

Borrowing costs: If borrowing costs are directly incurred as part of the acquisition, construction or production of a qualifying asset, they 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. Borrowing costs were calculated based on a rate of 1.25% (previous year: 1.25%) 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 €4,261 million in 2022. Investments were made at the following sites in particular: Ludwigshafen, Germany; Antwerp, Belgium; Zhanjiang, China; Geismar, Louisiana; and Schwarzheide, Germany. Material investments included the development of infrastructure and technical equipment at the new Verbund site in Zhanjiang, China, as well as construction and expansion of the ethylene oxide and polyethylene oxide production plants in Antwerp, Belgium, and Ludwigshafen, Germany. Investments also comprised the construction of infrastructure and production plants for battery materials in Schwarzheide, Germany. Government grants for funding investment measures reduced asset additions by €7 million.

In 2022, impairments of €390 million and reversals of impairments of €20 million were included in accumulated depreciation.

Due to the planned divestiture of the site, impairments of €80 million related to construction in progress, machinery and technical equipment, buildings and land as well as miscellaneous equipment at a production site in Europe in the Surface Technologies segment. Furthermore, there was a complete write-down in the amount of €24 million due to a production plant closure in North America in the Materials segment. In addition, several older assets in Ludwigshafen, Germany, pertaining to the Materials segment with a residual carrying amount of €13 million were fully written down. Impairments to construction in progress mainly related to discontinued investment projects. The deteriorating cost position in Europe, due mainly to the significant rise in gas prices, led to intermittent production discontinuations and low capacity utilization at various plants in Europe, especially in Ludwigshafen, Germany. Impairment tests were therefore conducted on the relevant plants, which resulted in the partial impairment of a production plant in the Chemicals segment in the amount of €195 million. The value in use in the amount of €350 million was calculated based on the assumption that gas prices in Germany in the next three years would only slowly return to a level that would lead to a cost position comparable with that in other regions. The value in use was calculated applying a weighted cost of capital after taxes of 8.22%, which had been adjusted to account for the risk of this planning calculation. This corresponds to a cost of capital rate before taxes of 12.0%.

Reversals of impairments in the amount of €20 million resulted primarily from an increase in the fair value of plants impaired at a site in North America in 2020.

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

Transfers to disposal groups related to the adjustment of reclassified amounts in connection with the divested kaolin minerals business.

• For more information on divestitures, see Note 3

Currency effects raised property, plant and equipment by €286 million and resulted mainly from appreciation of the U.S. dollar against the euro.