GLOSSARY 189 Contingent liabilities  Defined contribution pension plans Corridor approach Derivative financial instruments (derivatives) Credit risk Earnings from ordinary activities Current service cost Current value Earnings per share (basic/diluted) Equity consolidation Deferred tax assets/liabilities Deferred acquisition costs Equity method Defined benefit pension plans Financial obligations not shown as liabilities on the balance sheet because the probability of a liability actually being incurred is low. Example: guarantee obligations. Under this approach to pension plans, actuarial gains and losses are not recognized immediately. Only when the cumulative gains or losses fall outside the corridor is a specified portion recognized in the income statement from the following year onwards. The corri- dor is 10 % of the present value of the pension rights accrued or of the independent pension fund assets at market value, if greater. The risk that one party to a contract will fail to discharge its obliga- tions and thereby cause the other party to incur financial loss. Net expense in connection with a defined benefit pension obliga- tion, less any contributions made by the beneficiary to the inde- pendent pension fund. The current value of an investment is normally the same as the mar- ket value. If the market value cannot be calculated directly, fair mar- ket value is used. Expenses of an insurance company which are incurred in connection with the acquisition of new insurance policies or the renewal of ex- isting policies. They include commissions paid and the costs of pro- cessing proposals. The calculation of deferred tax is based on temporary differences between the carrying amounts of assets or liabilities in the published balance sheet and their tax base, and on differences arising from ap- plying uniform valuation policies for consolidation purposes. The tax rates used for the calculation are the local rates applicable in the countries of the enterprises included in the consolidation; changes to tax rates already adopted on the balance sheet date are taken into account. Under these retirement plans the enterprise promises the benefici- ary a particular level of benefit. The contribution payable is based on the age of the beneficiary and depends on the level of benefit prom- ised. Investments in joint ventures and associated companies are ac- counted for by this method. They are valued at the Group’s propor- tionate share of the net assets (= shareholders’ equity) of the com- panies concerned. In the case of investments in companies which prepare consolidated financial statements of their own, the valuation is based on the sub-group’s consolidated net assets. The valuation is subsequently adjusted to reflect the proportionate share of changes in the company’s net assets, a proportionate share of the company’s net earnings for the year being added to the Group’s consolidated income. The relevant proportion of cost for the investment in a subsidiary is set off against the relevant proportion of the shareholders’ equity of the subsidiary. Ratio calculated by dividing the consolidated profit or loss for the year by the average number of shares issued. For calculating diluted earnings per share the number of shares and the profit or loss for the year are adjusted by the dilutive effects of any rights to subscribe for shares which have been or can still be exercised. Subscription rights arise in connection with issues of convertible bonds or share options. Pre-tax profit or loss from activities which an enterprise undertakes in the normal course of business. This does not include extraordi- nary items, i.e. income or expenses that arise from events or trans- actions that are clearly distinct from the ordinary activities of the en- terprise and are therefore not expected to recur frequently or regu- larly.  Financial contracts, the values of which move in relationship to the price of an underlying asset. Derivative financial instruments can be classified in relation to their underlying assets (e.g. interest rates, share prices, exchange rates or prices of goods). Important exam- ples of derivative financial instruments are options, futures, forwards and swaps. The central feature of these post-employment benefit plans is the contribution which an enterprise pays into an independent pension fund. The enterprise has no further obligations beyond the amount that it agrees to contribute to the fund and has no interest in the fi- nancial results of the independent pension fund. Benefits have to be claimed from the independent pension fund.