52 Financial income and expenses Financial income consists of interest income on funds invested (including, where applicable, financial assets available for sale), dividend income, gains on the sale of financial assets available for sale, and gains on hedging instruments recognised in profit or loss. Dividend income is recognised when the right to receive payment has been established. Results from the sale of financial instruments are recognised when the risks and benefits associated with ownership of the instruments have been transferred to the buyer and the Group no longer has control of the instrument. Financial expenses consist of interest expenses on loans, the effect of the resolution of present value calculations for provisions, impairment of financial assets and those losses on hedging instruments recognised in profit or loss. Borrowing expenses are recognised in profit or loss, except where they are directly attributable to the acquisition, construction or production of assets that take considerable time to complete for their intended use or sale, in which case they are included in the cost of those assets. No borrowing expenses have been capitalised during the past two years. Exchange gains and losses are recognised net. Financial instruments The Group classifies its financial assets in the following categories: financial assets measured at fair value in profit or loss and loan receivables and accounts receivables. The classification is dependent on the purpose for which the financial asset was acquired. Management establishes the classification of financial assets at initial recognition. (a) Financial assets recognised at fair value through profit or loss Financial assets recognised at fair value through profit or loss are financial assets held for trading. A financial asset is classified under this category if it is acquired for the primary purpose of being sold shortly thereafter. Derivatives are classified as being held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are expected to be settled within 12 months, otherwise they are classified as non-current assets. (b) Loan receivables and accounts receivables Loan receivables and accounts receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These are included in current assets, with the exception of items with a maturity of more than 12 months after the end of the reporting period, which are classified as non-current assets. The Group’s loan receivables and accounts receivables consist of accounts receivables and other receivables, as well as cash and cash equivalents in the balance sheet. A financial asset or financial liability is recognised in the balance sheet when the Company enters a contract for the instrument (i.e. on the relevant business day). A financial liability is recognised when the counterparty has performed and a contractual duty to pay arises, even if no invoice is received. A financial asset is derecognised when the rights to cash flow in the contract mature or the rights are transferred in a transaction that transfers essentially all risks and remunerations from ownership to the assets transferred. This also applies to parts of financial assets. A financial liability is removed from the balance sheet when the duty in the contract is performed or otherwise extinguished. This also applies to parts of financial liabilities. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. They arise when the Group provides money, goods or services directly to a debtor (usually a customer) with no intention of trading the receivable. These are recorded as current assets when the maturity is less than 12 months from the transaction date. Loans and receivables are recognised in “Accounts receivables” and “Other receivables” in the balance sheet. Loan receivables and accounts receivables are recognised after the acquisition date at amortised cost using the effective interest rate method. Financial instruments are initially recognised at fair value plus transaction costs, which applies to all financial assets that are not recognised at fair value through profit or loss, for which attributable transaction costs are instead recognised in the income statement. Derivatives Derivative instruments are recognised in the balance sheet on the date of contract and at fair value, both initially and upon subsequent revaluation. The method of recognising gain or loss arising from revaluation depends on whether the derivative is identified as a hedging instrument, and, in such event, the nature of the item being hedged. The Group identifies certain derivatives as either: (a) hedging of fair value regarding a recognised asset or liability or a firm commitment (fair-value hedging), (b) hedging of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedging). When the transaction is undertaken, the Group documents the relationship between the hedging instrument and the hedged item, as well as the hedge’s role in the Group’s risk management objectives and strategy. The Group also documents its assessment, both when it enters into hedging contracts and on an ongoing basis, as to whether the derivative instruments used in hedging transactions are effective in terms of counteracting changes in fair value or cash flow that are attributable to the hedged items. The Company’s derivative instruments consist of OTC or “over-the-counter” derivatives concluded with financial counterparties, listed standardised derivatives and sales and purchase contracts that do not meet the exemption criteria for being recognised as a derivative (that is, that are not deemed to be for own use). According to IAS 39, only contracts not designed for physical delivery may be measured at market price. AAK’s business model permits (enables) the net settlement of purchase and sales contracts entered into for physical delivery. Derivatives that are not used as hedging instruments for which hedge accounting is applied are recognised at fair value in the income statement. Hedge accounting Hedging of fair value Changes in fair value of a derivative that has been formally identified for hedging of fair value and meets the conditions for hedge accounting are recognised on the same line in the income statement as any change in fair value attributable to the hedged risk for the hedged asset or liability. The Group applies hedging of fair value for raw materials and foreign currency in sales and purchase contracts. The gain or loss attributable to the ineffective portion is recognised with immediate effect in profit or loss in ”Raw materials and consumables and changes in inventory”.
AAK Annual Report 2015
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