The principal accounting policies applied in the preparation of these consolidated financial statements are described below. These policies have been consistently applied to all the information presented, unless otherwise stated.
Basis of preparation
The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards, with application of the IFRS and IAS standards as well as IFRIC and SIC interpretations that were effective on 31 December 2011. In the Finnish Accounting Act and regulations enacted by virtue of it, International Financial Reporting Standards refer to standards and related interpretations approved for adoption within the EU according to the procedure described in regulation (EC) No 1606/2002. The notes to the consolidated financial statements also comply with the Finnish accounting and community legislation supplementing the IFRS regulations.
The consolidated financial statements have been prepared in euros, and figures are presented as thousands of euros. The financial statements have been prepared under the historical cost convention with the exception of available-for-sale investments for which a fair value can be determined from market prices and derivative contracts, which have been measured at fair value. Share-based payments have been recognised at fair value on the grant date.
Consolidation
The consolidated financial statements include the parent company Lassila & Tikanoja plc and all subsidiaries in which the Group exercises control. The Group has a controlling interest when it holds more than 50 per cent of votes, or otherwise exercises control over the company. Control means the right to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The subsidiaries are fully consolidated from the date on which control is transferred to L&T until the date that control ceases.
Intra-Group shareholdings have been eliminated using the acquisition method. Consideration given and the identifiable assets and liabilities of an acquired company are recognised at fair value on the date of acquisition.
Any costs associated with the acquisition have been recorded as expenses. Any conditional additional sale price has been recognised at fair value on the date of acquisition and classified as a liability or as equity.
All intra-Group transactions, receivables, liabilities and unrealised margins, as well as distribution of profits within the Group, have been eliminated in the consolidated financial statements. Non-realised losses are not eliminated if the losses are attributable to impairment. The distribution of profit for the period between equity holders of the parent company and the non-controlling interest is presented in connection with the income statement, and the share of equity belonging to the non-controlling interest is presented as a separate item in the consolidated statement of financial position under equity.
Business combinations between entities under shared control are measured using the purchase prices.
Joint ventures are entities over which the Group, together with another party, exercise joint, contractually agreed control. Joint ventures are accounted for by the proportionate method line by line. The Group’s share of the assets, liabilities, revenues, expenses and contingent liabilities of the joint ventures is included in the consolidated financial statements. A share corresponding to the Group's ownership of the joint venture's cash flow items is consolidated in the Group's statement of cash flows.
Foreign currency translation
The consolidated financial statements are presented in euros, which is the parent company’s functional and presentation currency. Items included in the financial statements of each of the Group’s entities are treated using the currency of the primary economic operating environment in which the entity primarily operates (the functional currency).
Any transactions in foreign currencies have been recognised in the functional currency using the exchange rate in effect on the transaction date. Monetary assets denominated in foreign currency are translated into euros using the exchange rates in effect on the balance sheet date. Non-monetary assets are translated using the exchange rates on the dates prevailing at the dates of the transactions. There are no non-monetary assets denominated in foreign currency that are measured at fair value. Exchange rate gains and losses arising from foreign currency transactions and the translation of monetary assets are recognised in the income statement. Foreign exchange gains and losses on business transactions are included in the respective items above operating profit. Foreign exchange gains and losses on financial assets and liabilities are included in finance income or finance costs.
The income statements of the Group entities whose functional currency is not the euro are translated into euros at average exchange rate for the period, and the statements of financial positions at the exchange rate for the balance sheet date. The difference in exchange rates applicable to the translation of profit in the income statement and statement of financial position result in a translation difference recognised in the translation reserve within equity. Translation differences arising from the elimination of the acquisition cost of foreign subsidiaries, as well as translation differences in equity items accumulating after the acquisition, are recognised in the translation reserve. Non-current loan receivables for which settlement is neither planned nor likely to occur in the foreseeable future are treated as part of the net investment in subsidiaries. The translation differences on such receivables also are recognised in the translation reserve. When a subsidiary is sold, any accumulated translation differences are recognised in profit or loss as part of the total gain or loss on the sale.
Goodwill and fair value adjustments to the assets and liabilities arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated into euro at the closing rate.
Revenue recognition
Sales of services are recognised after the services have been provided. At plants producing materials for sale, the cost of materials is recognised in inventories. When the processed materials have no sales price, cost provisions are recognised in accrued expenses.
Sales of goods are recognised after the decisive risks and rewards connected to the ownership of the goods sold have been transferred to the buyer, and the amount of the revenue can be reliably measured.
Sales are shown net of indirect tax and discounts.
Interest income is recognised using the effective interest method. The Group’s dividend income is minor, and it is recognised when the right becomes vested if information on dividends is available at that time. Otherwise it is recognised on the date of payment.
Construction contracts
Contract revenue and contract costs are recognised on the basis of the stage of completion once the outcome of the project can be estimated reliably. Landfill closure contracts are recognised using the percentage-of-completion method. Their initiation and completion generally take place in different financial periods. The stage of completion of a contract is determined as the proportion of costs incurred from work completed up to the time of examination in relation to the estimated total contract costs. If the incurred costs and recognised profits exceed the progress billings, the difference is presented in the statement of financial position under trade and other receivables. If the incurred costs and recognised profits are less than the progress billings, the difference is presented under advances received.
When the outcome of a construction contract cannot be estimated reliably, the costs incurred are recognised as an expense in the period in which they are incurred, and revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable. If it is probable that the total contract costs will exceed total contract revenues, the expected loss is recognised as an expense immediately.
The outcome of the projects related to the collection of contaminated soil cannot be estimated reliably. According to the prudence principle, revenue from the contaminated soil collection operations will not be recognised as revenue until the soil has been finally disposed of. The costs of the projects are recognised as an expense in the period in which they are incurred.
Research and development
Research expenditure has been recognised as an expense during the period in which it is incurred. The probable future revenues from new service concepts are evident at such a late stage that the portion to be recognised as an asset has no material importance, and thus the costs are not recognised as an asset.
Computer software development costs recognised as an asset in the statement of financial position are described in more detail in the following chapter.
Goodwill and other intangible assets
Goodwill represents the portion of the acquisition cost by which the aggregate of the consideration given, the share of non-controlling owners in the acquired entity and the previously owned share exceed the fair value of the acquired entities at the time of acquisition. Goodwill is not amortised, but it is tested annually for impairment. Goodwill is presented in the statement of financial position at original cost less impairment losses, if any.
Intangible assets acquired in a business combination are measured at fair value. The useful lives of intangible assets are assessed to be finite or indefinite. In L&T, the intangible assets recognised in business combinations include items such as customer relations, non-competition agreements and environmental permits. They have finite useful lives varying between three and thirteen years.
Other intangible assets consist primarily of software and software licences.
The costs of software projects are recognised in other intangible assets starting from the time when the projects move out of the research phase into the development phase and the outcome of a project is an identifiable intangible asset. Such an intangible asset must provide L&T with future economic benefit that exceeds the costs of its development. The cost comprises all directly attributable costs necessary for preparing the asset to be capable of operating in the manner intended by the management. The largest cost items are consultancy fees paid to third parties, as well as salaries and other expenses for the Group’s personnel.
The amortisation period for computer software and software licences is five years.
Property, plant and equipment
Property, plant and equipment are recognised at acquisition cost less accumulated depreciation and impairment losses. The historical cost includes expenditure that is directly attributable to the acquisition of property, plant and equipment.
The financial costs attributable to the construction of the joint venture L&T Recoil’s re-refinery have been capitalised as part of the cost of the asset and they are depreciated over ten years. As L&T Recoil’s borrowings have been taken out for the construction of the re-refinery, the actual borrowing costs have been capitalised in the acquisition cost.
In business combinations, property, plant and equipment are measured at fair value at the acquisition date. In the statement of financial position, property, plant and equipment are shown less depreciation and impairment, if any.
Property, plant and equipment are depreciated using the straight-line method over the expected useful lives excluding new landfills. The expected useful lives are reviewed on each balance sheet date and, if expectations differ substantially from previous estimates, the depreciation periods are adjusted to reflect the changes in the expectations for future economic benefits.
The depreciation in the financial statements is based on the following expected useful lives:
Buildings and structures 5–30 years
Vehicles 6–15 years
Machinery and equipment 4–15 years
For completed landfills the Group applies the units of production method. Landfills are depreciated on the basis of the volume of waste received. Land is not depreciated.
When an asset included in property, plant and equipment consists of several components with different estimated useful lives, each component is treated as a separate asset. Ordinary repair and maintenance costs are recognised in the income statement during the period in which they are incurred. Costs of significant modification and improvement projects are capitalised if it is probable that the projects will result in future economic benefits to the Group. Gains and losses on sales and disposal of property, plant and equipment are recognised through profit or loss and are presented in other operating income or expenses.
Impairment of assets
On each closing day of a reporting period, the Group assesses the balance sheet values of its assets for any impairment. If any indication exists, an estimate of the asset’s recoverable amount is made. The need for recognition of impairment is assessed at the level of cash generating units – that is, the lowest level of unit that is primarily independent of other units and that generates cash flows that are separately identifiable.
The recoverable amount is the higher of an asset’s fair value less selling costs and its value in use. Value in use refers to the estimated future net cash flows available from an asset or cash generating unit, discounted to present value. The discount rate used is the pre-tax rate, which reflects the market view of the time value of money and the risks associated with the asset item.
An impairment loss is recognised in the income statement when an asset’s carrying amount exceeds its recoverable amount. Impairment losses attributable to a cash generating unit are used to deducting first the goodwill allocated to the cash generating unit and, thereafter, the other assets of the unit on an equal basis.
An impairment loss for an asset other than goodwill recognised in prior periods is reversed if there is a change in circumstances and the recoverable amount has changed. An impairment loss recognised on goodwill is not reversed.
Goodwill is tested for impairment annually or whenever there is any indication that it may be impaired. Recoverable amount calculations based both on values in use and on net sales price are made for the cash generating units to which the goodwill has been allocated.
Intangible assets under construction are software projects that cannot be tested separately for impairment as they do not generate separate cash flow. There is no need for impairment if it is stated at the end of the financial period that the projects will be completed and the software will be brought to use. The intangible assets under construction are, however, tested for impairment as a part of the cash generating unit to which they belong.
Leases
The Environmental Services division leases equipment, such as waste compactors, out to customers under long-term leases that transfer substantially all the risks and rewards incidental to ownership to the lessee. Such leases are classified as finance lease, and net investment in them is recognised as a trade receivable at the commencement of the lease term. Each lease payment is apportioned between finance income and repayment of trade receivables. Finance income is allocated over the lease term on the basis of a pattern that reflects a constant periodic rate of return on the net investment.
The assets leased under a finance lease are recognised in property, plant and equipment at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments. They are depreciated over the lease term or over their expected useful lives, if shorter. However, when there is reasonable assurance that the ownership of the leased asset will transfer to L&T by the end of the lease term, the asset will be depreciated using the method applied for a corresponding asset being utilised by the company. Liabilities arising from the lease agreements are recognised in borrowings. Each lease payment is apportioned between interest cost and reduction of finance lease liabilities. Finance costs are allocated to each period of the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Leases of assets and premises that do not transfer substantially all the risks and rewards incidental to ownership to the lessee are classified as operating leases. The lease payments are recognised on a straight-line basis over the lease term as income or cost depending on whether L&T is the lessor or the lessee. Assets leased out under operating leases are recognised in property, plant and equipment and are depreciated over their expected useful lives using the method applied for corresponding property, plant and equipment being utilised by the company.
The joint venture L&T Recoil has signed a purchase agreement covering the procurement of hydrogen, hot oil and steam. Pursuant to this agreement, L&T Recoil undertakes to purchase the entire production of the production facilities for its re-refinery. The purchase agreement contains a lease as specified in IFRIC 4. This is classified as a financial lease with the same term as the purchase agreement.
Financial instruments
Financial assets and liabilities are classified as loans and receivables, available-for-sale investments, financial assets and liabilities at fair value through profit or loss and as other financial liabilities. The classification is done when the asset or liability is acquired and is based on the purpose of the acquisition.
A financial asset is derecognised when the rights to the cash flows from the asset expire or when substantially all risks and rewards of the ownership of the asset have been transferred outside L&T.
Borrowings and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade and other receivables are included in this category, and they are recognised in the statement of financial position at historical cost less credit adjustments and impairment losses.
Available-for-sale investments include shares as well as certificates of deposit and commercial papers. By definition, the category includes financial assets that do not belong to actual business and are not in production use on the one hand, and financial assets that can be sold to obtain working capital for business operations on the other hand. The financial instruments in this category are measured at fair value. All unlisted shares are, however, measured at cost or at cost less impairment loss, if any, as the markets for these shares are inactive and their fair value cannot be measured reliably.
Available-for-sale investments are included in non-current assets if management intends not to dispose of the investment within 12 months of the balance sheet date. All purchases and sales of available-for-sale investments are recognised on the settlement date. Any change in fair value between the trade date and settlement date is recognised in equity.
In the financial statements, available-for-sale investments are measured at fair value at market prices of the balance sheet date. Changes in fair values are recognised considering tax effects in the revaluation reserve within equity and transferred to the income statement when the asset is sold or becomes due. Changes in fair values are transferred to the income statement also when the fair value of an investment has been permanently impaired.
Financial assets and liabilities at fair value through profit or loss are derivative financial instruments to which hedge accounting is not applied. Accounting policies applied to them are described below under Derivative financial instruments and hedge accounting.
Borrowings are recognised in the statement of financial position at the settlement date at fair value on the basis of the consideration received including transaction costs that are directly attributable to the acquisition or issue. Subsequently these financial liabilities are measured at amortised cost using the effective interest rate method. Financing costs associated with the construction of the L&T Recoil re-refinery have been capitalised as part of the acquisition cost of the investment.
Trade and other current non-interest-bearing payables are recognised in the statement of financial position at cost.
Derivative financial instruments and hedge accounting
As specified in its financial policy, L&T uses derivative contracts to reduce the financing risks associated with interest rate, commodity and exchange rate fluctuations. L&T’s derivative financial instruments include interest rate swaps to hedge the cash flow of variable-rate borrowings against interest rate risk, commodity derivatives made to balance price fluctuations in future diesel purchases, and currency derivatives made to hedge purchases in foreign currencies against foreign exchange risk.
Derivatives are recognised initially in the statement of financial position at fair value. After acquisition, they are measured at fair value at each balance sheet date. The fair values of interest rate swaps, commodity swaps and forward contracts are based on market quotations at balance sheet date. Any gains and losses arising from fair valuation are accounted for in the manner determined by the purpose of the derivative financial instrument.
All interest rate hedges, commodity hedges and currency hedges meet the criteria set for efficient hedging in the Group’s risk management policy. The profits and losses from derivatives covered by hedge accounting are recognised consistently with the underlying commodity. Derivative agreements are defined as hedging instruments for future cash flows and anticipated purchases (cash flow hedging), or as derivative agreements to which hedge accounting is not applied (financial hedging).
L&T applies cash-flow hedge accounting for almost all interest rate swaps and commodity derivatives. When hedge accounting is initiated, L&T documents the relationship between the hedged item and the hedging instrument, as well as the Group's risk management objectives and hedging strategy. The Group does not use derivatives to hedge net investments made in independent foreign units.
When hedging begins and in connection with each interim report, L&T documents and estimates the effectiveness of the hedging relationships by assessing the hedging instrument’s ability to cancel any changes in the cash flows of the hedged item.
To the extent that cash flow hedging is efficient, changes in fair values of hedging instruments are recognised in the hedging reserve within equity. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting under IAS 39, the gain or loss on the hedging instrument remains in equity until the hedged cash flow becomes realised. If the hedged cash flow no longer is expected to be realised, the gain or loss incurred on the hedging instrument is recognised immediately through profit or loss. The ineffective portion a hedging relationship is also recognised through profit or loss.
The economic characteristics and risks of interest options included in borrowing agreements are embedded derivatives closely related to the host contracts. L&T does not, under IAS 39, account for them separately from the host contracts.
Hedge accounting in accordance with IAS 39 was not applied to foreign currency forward contracts and changes in the fair values of these items were recognised in the income statement as finance income or costs. Derivatives to which hedge accounting is not applied are categorised as financial assets and liabilities held for trading.
The positive fair values of all derivatives are recognised in the balance sheet under derivative receivables. Similarly, the negative fair values of derivatives are recorded under derivative payables. All fair values of derivatives are included in current assets or liabilities.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, bank deposits redeemable on demand, as well as other short-term liquid investments. Their maturity is no longer than three months from the acquisition date and they are recognised as of the settlement date and measured at historical cost. Foreign currency transactions are translated into euros using the exchange rates prevailing at the balance sheet date.
Impairment of financial assets
The Group assesses on each balance sheet date whether there is objective evidence that any financial asset item is impaired. If there is evidence of impairment, the cumulative loss in the fair value reserve is recognised in profit or loss. Impairment losses on shares classified as financial assets available for sale are not reversed through profit or loss, as is the case with impairment losses recognised on fixed income instruments that are subsequently reversed.
Doubtful debts are reviewed each month. If there is objective evidence that the balance sheet values of the receivables exceed their recoverable amounts, the difference is recognised as an impairment loss in other operating expenses in the income statement. The criteria for recognising an impairment loss on a receivable include the debtor’s substantial financial difficulties, corporate restructuring, a credit loss recommendation issued by a collection agency or extended default on payments. If the difference between the balance sheet value of receivables and the recoverable amounts is reduced later, the impairment loss will be cancelled through profit or loss.
Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The inventories of L&T Biowatti, L&T Recoil and Environmental Products are measured using the weighted average cost method. The value of other inventories is determined using the FIFO method.
At its recycling plants, L&T processes recyclable materials into secondary raw materials for sale. The cost of the inventories of these materials comprises raw materials, direct labour costs, other direct costs of manufacturing and a proportion of variable and fixed production overheads based on normal operating capacity.
Employee benefits
Retirement benefit obligations
Pension plans are categorised as defined benefit and defined contribution plans. Under defined contribution plans the Group pays fixed contributions for pensions, and it has no legal or factual obligation to pay further contributions. All pension arrangements that do not fulfil these conditions are considered defined benefit plans. Contributions to defined contribution plans are recognised in the income statement in the financial period to which they relate. L&T operates pension schemes in accordance with local regulations and practices in the countries in which it operates, and these are mainly defined contribution plans.
L&T operates some minor defined benefit plans originating from business acquisitions. Some of these defined benefit pension plans are the Group’s own responsibilities while some are covered by pension insurance. The obligations have been calculated for each plan separately using the projected unit credit method. Pension costs are recognised in the income statement over employees’ periods of service in accordance with actuarial calculations. When calculating the present value of pension obligations, the discount rate is based on the market yield of the high-quality bonds issued by the company, whose maturity materially corresponds to the estimated maturity of the pension obligation. The risk premium is based on bonds issued by companies with AAA credit rating. The pension plan assets measured at fair value on the balance sheet date, the share of unrecognised actuarial gains and losses, as well as any past-service costs are deducted from the present value of the retirement benefit obligation to be recognised in the statement of financial position.
The portion of the actuarial gains and losses that exceeds the greater of 10% of the retirement benefit obligations and 10% of the fair value of plan assets is recognised in the income statement over the expected remaining working lives of the persons participating in the scheme.
Past-service costs are recognised as expenses in the income statement on a straight-line basis over their vesting period.
Share-based payment
Share options
Proceeds from options issued in 2008 are recognised net of any transaction costs in accordance with the terms and conditions of the plan in non-restricted equity fund.
Share-based incentive programmes
Lassila & Tikanoja plc’s Board of Directors decided on 24 March 2009 on a share-based incentive programme to form a part of the incentive and commitment scheme for the company’s key personnel. Payment of the reward was subject to reaching the financial targets set by the Board. The criteria for the determination of the rewards were decided annually. The basis of the payment in 2011 was the EVA result of Lassila & Tikanoja group.
The programme included three earnings periods one year each, of which the first one began on 1 January 2009 and the last one ended on 31 December 2011. Potential rewards were paid during the year following each earnings period partly as shares and partly in cash. The fair value of the share is its market price on the grant date.
Share-based incentive programme 2012
Lassila & Tikanoja plc’s Board of Directors decided on 14 December 2011 on a new share-based incentive programme. Rewards will be based on the EVA result of Lassila & Tikanoja group without L&T Recoil. In other respects the conditions are equal with the 2009-2011 programme.
Provisions
A provision is recognised when L&T has a legal or actual obligation toward a third party resulting from past events and the event involves a probable payment obligation in an amount that can be estimated reliably. A liability of uncertain timing and amount is recognised as a provision. In other cases a liability is recognised in accrued expenses.
Environmental provisions are recognised when it is probable that an obligation has arisen and its amount can be estimated reliably. Environmental provisions related to the restoration of sites are made at the commencement of each project. The costs recognised as a provision, as well as the original acquisition cost of assets, are depreciated over the useful life of the asset. Provisions are discounted to present value. The most significant provisions recognised in the statement of financial position are the site restoration provisions for landfills and the contaminated soil processing site.
Borrowing costs
The borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset shall be included in the acquisition cost of that asset.
Transaction costs directly attributable to the issue of a financial liability have been included in the historical cost of the liability and have been recognised as interest expense during the expected life of the liability applying the effective interest method already before the effective date of the standard.
Government grants
Government grants or other grants relating to actual costs are recognised in the income statement when the group complies with the conditions attached to them and there is reasonable assurance to that the grants will be received. They are presented in other operating income. Government grants directly associated with the recruitment of personnel, such as employment grants, apprenticeship grants and the like, are recognised as reductions in personnel expenses. Grants for acquisition of property, plant and equipment are recognised as deductions of historical cost. The grant is recognised as revenue over the life of a depreciable asset by way of a reduced depreciation charge.
Income taxes
The Group’s income taxes consist of current tax and deferred tax. Tax expenses are recognised in the income statement with the exception of items directly recognised in equity, in which case the tax effect is recognised correspondingly in equity. Current tax is determined for the taxable profit for the period according to prevailing tax rates in each country. Taxes are adjusted by the current tax for previous periods, if any.
Deferred tax assets and liabilities are recognised for all temporary differences between the tax bases of assets and liabilities and their carrying amounts. Calculation of deferred taxes is based on the tax rates in effect on the closing day. If the rates change, it is based on the new tax rate. No deferred tax is recognised for impairment of goodwill that is not tax-deductible. A deferred tax asset is recognised only to the extent that it is probable that taxable profit will be available against which the deferred tax asset can be utilised.
Temporary differences arise e.g. from goodwill amortisation performed under FAS, depreciation on property, plant and equipment and revaluation of derivative financial instruments and measurement at fair value in business combinations.
Critical judgments in applying the Group’s accounting policies
The Group’s management makes judgments when making decisions on the choice and application of accounting policies. In particular, this concerns cases in which valid IFRS standards provide for alternative methods of recognition, measurement or presentation. A significant choice of accounting policy is to use the proportionate method, not the equity method, in the consolidation of joint ventures within the Group.
Critical accounting estimates and judgements
The preparation of financial statements in accordance with IFRS require the management to make such estimates and assumptions that affect the carrying amounts at the balance sheet date for assets and liabilities and the amounts of revenues and expenses.. Actual results may differ from the estimates and assumptions. The items wherein critical estimates and judgements have been made are described below.
Fair value measurement of assets and liabilities acquired in business combinations
Assets and liabilities acquired in business combinations are measured at fair value according to IFRS 3. Whenever possible, the management uses available market values when determining the fair values. When this is not possible, the measurement is based on the historical revenues from the asset. In particular, the measurement of intangible assets is based on discounted cash flows and requires the management to make estimates on future cash flows and the future use of assets, along with their effect on the Group’s financial position. Although these estimates are based on the management’s best knowledge, actual results may differ from the estimates (Note 2 Business acquisitions). The carrying amounts of assets are reviewed continuously for impairment. More information about this is provided in the section “Impairment of assets” under the accounting policies.
Goodwill impairment testing
In testing of goodwill for impairment, the recoverable amounts of the cash generating units to which the goodwill belongs are determined on the basis of value-in-use calculations. These calculations require the judgment by the management. Though the assumptions used are appropriate according to the management’s judgment, the estimated cash flows may differ fundamentally from those realised in the future (Note 13 Goodwill impairment tests).
Distribution of dividend
The dividend liability to the company’s shareholders is recognised as a liability in the consolidated financial statements after the Annual General Meeting has decided on the dividend distribution.
Application of new or amended IFRS standards
In preparing these interim financial statements, the group has followed the same accounting policies as in the annual financial statements for 2010 except for the effect of changes required by the adoption of the following new standards, interpretations and amendments to existing standards and interpretations on
1 January 2011:
IAS 24 (revised) Related Party Disclosures. The revised standard simplifies the disclosure requirements for governmentrelated entities and clarifies the definition of a related party. The interpretation does not have an impact on the consolidated financial statements.
IAS 32 (amendment) Financial Instruments: Presentation – Classification of Rights Issues. The amendment addresses the accounting for rights issues (rights, options or warrants) that are denominated in a currency other than the functional currency of the issuer. The amendment requires that, provided certain conditions are met, such rights issues are classified as equity regardless of the currency in which the exercise price is denominated. Previously such rights issues were accounted for as derivative liabilities. The amendement will be retroactively applied according to IAS 8 Accounting policies, changes in accounting estimates and errors. The interpretation does ot have an impact on the consolidated financial statements.
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments. he interpretation clarifies the accounting when an entity renegotiates the terms of its debt with the result that he liability is extinguished by the debtor issuing its own equity instruments to the creditor. IFRIC 19 requires a gain or loss to e recognised in profit or loss when a liability is settled through the issuance of the entity’s own equity instruments. The amount of the gain or loss recognised in profit or loss will be the difference between the carrying value of the financial liability and the fair value of the equity instruments issued. The new interpretation does not have an impact on the consolidated financial statements.
IFRIC 14 (Amendment) Prepayments of a Minimum Funding Requirement. The amendment is aimed at correcting an unintended consequence of IFRIC 14. “IAS 19 – the limit on a defined benefit asset, minimum funding requirements and their Interaction” As a result of the interpretation, entities are in some circumstances not permitted to recognise some prepayments for minimum funding contributions as an asset. The amendment remedies this unintended consequence by requiring prepayments in appropriate circumstances to be recognised as assets. The amendment does not have an impact on the consolidated financial statements.
IASB published changes to 7 standards or interpretations in July 2010 as part of the annual Improvements to standards that the Group has adopted in 2011. The amendements do not have an impact on the consolidated financial statements.
The following new standards, interpretations and amendments to existing standards and interpretations will be adopted by the Group as of 1 January 2012:
IFRS 7 (amendment) Financial instruments: Disclosures – Derecognition. This amendment will promote transparency in the reporting of transfer transactions and improve users’ understanding of the risk exposures relating to transfers of financial assets and the effect of those risks on an entity’s financial position, particularly those involving securitisation of financial assets. Earlier application subject to EU endorsement is permitted. The amendment does not have any impact on the consolidated financial statements.
IAS 12 (amendment) Income taxes – Deferred tax. IAS 12 previosly required an entity to estimate, which part of the carrying value of an item measured at fair value is recovered through use and which part through sale. The amendment introduces a rebuttable presumption that certain assets measured at fair value are recovered entirely by sale. Presumption applies to deferred tax arising from investment properties, property, plant and equipment or intangible assets that are measured using the fair value model or revaluation model. The standard is still subject to EU endorsement. The interpretation does not have an impact on the consolidated financial statements.
The following new standards, interpretations and amendments to existing standards and interpretations will be adopted in 2013 or later:
IFRS 10 Consolidated financial statements. The objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities to present consolidated financial statements. Defines the principle of control, and establishes controls as the basis for consolidation. Sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee. Sets out the accounting requirements for the preparation of consolidated financial statements. The standard is still subject to EU endorsement. The standard has no impact on the consolidated financial statements.
IFRS 11 Joint arrangements. IFRS 11 is a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed. The standard is still subject to EU endorsement. The change effects the consolidation of joint venture on consolidated financial statements.
IFRS 12 Disclosures of interests in other entities. IFRS 12 includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The standard is still subject to EU endorsement. Management is assessing the impact of the standard on the financial statements of the group.
IFRS 13 Fair value measurement. IFRS 13 provides a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The standard is still subject to EU endorsement. Management is assessing the impact of the standard on the financial statements of the group.
IAS 27 (revised 2011) Separate Financial Statements. IAS 27 includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10. The standard is still subject to EU endorsement. Management is assessing the impact of these changes on the financial statements of the group.
IAS 28 (revised 2011) Associates and joint ventures. IAS 28 includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11. The standard is still subject to EU endorsement. The change effects the consolidation of joint venture in consolidated financial statements.
IAS 1 (amendment) Presentation of financial statement – other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in ‘other comprehensive income’ (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not address which items are presented in OCI. The amendment is still subject to EU endorsement. Management is assessing the impact of these changes on the financial statements of the group.
IAS 19 (amendment) Employee benefits. These amendments eliminate the corridor approach and calculate finance costs on a net funding basis. The amendment is still subject to EU endorsement. Management is assessing the impact of these changes on the financial statements of the group.
IFRS 9 Financial instruments. IFRS 9 is the first standard issued as part of a wider project to replace IAS 39. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortised cost and fair value. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. The guidance in IAS 39 on impairment of financial assets and hedge accounting continues to apply. The Group will probably adopt the standard in its 2015 financial statements. The standard is still subject to EU endorsement. Management is currently assessing the impact of the standard on the financial statements of the group.
IAS 32 (amendment) Offsetting Financial Assets and Financial Liabilities. The amendments address inconsistencies in current practice when applying the offsetting criteria in IAS 32. The amendments clarify that the right of set-off must be available today – that is, it is not contingent on a future event. It also must be legally enforceable for all counterparties in the normal course of business, as well as in the event of default, insolvency or bankruptcy. The amendments also clarify that certain gross settlement mechanisms are effectively equivalent to net settlement and would therefore satisfy the IAS 32 criterion in these instances. The Group will probably adopt the standard in its 2014 financial statements. However, the standard is still subject to EU endorsement. Management is assessing the impact of these changes on the financial statements of the group.
IFRS 7 (amendment) Financial instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities. The amended disclosures require more extensive disclosures than are currency required on offset financial asset and liabilities. The disclosures focus on quantitative information about recognised financial instruments that are offset in the statement of financial position, as well as those recognised financial instruments that are subject to master netting or similar arrangements irrespective of whether they are offset in the balance sheet. The Group will adopt the standard in its 2013 financial statements. However, the standard is still subject to EU endorsement. Management is assessing the impact of these changes on the financial statements of the group.