Note Summary of significant accounting policies
AAK has chosen to apply the practical expedient concerning
short-term leases and leases of low-value assets. Short-term
leases are leases with a lease term of 12 months or less and
Low-value assets have an underlying value of USD 5 000 or
less when new. Payments associated with short-term leases
and leases of low-value assets are recognized on a straightline
basis as an expense in profit or loss.
Extension and termination options are included in the
majority of the property leases across the Group. These
terms are used to maximize operational flexibility in terms
of managing contracts. When determine the lease term the
management consider all relevant facts and circumstances
that create an economic incentive for the lessee to exercise
an option to extend the lease, or not to exercise an option to
terminate the lease. Periods covered by the extension option
are included in the lease term only if the lessee is reasonably
certain to exercise the extension option, or if the lessee is
reasonably certain not to exercise the termination option.
Assessment regarding the exercise of options to extend or
options to terminate a lease agreement is revised if there is
any material event or change in circumstances that affect this
assessment and if that change is within AAK’s control.
Product development
Product development work is an integral part of production
relating to process improvement measures that is expensed
on a continuous basis as a part of the product cost as it
arises. Research and development expenses are those
related to work whose purpose is primarily to optimize the
attributes and function of oils and speciality fats, either for the
finished product in which these oils and fats are ingredients
or to improve the efficiency of the production process of the
finished product.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition
over the fair value of the Group’s share of the net identifiable
assets of the acquired subsidiary on the date of acquisition.
Goodwill on acquisitions of subsidiaries is included in
intangible assets. Goodwill recognized separately is allocated
to cash-generating units for the purpose of annual impairment
testing. Goodwill is allocated to the cash-generating units
that are expected to benefit from the acquisition. Goodwill
is recognized at cost less accumulated impairment losses.
Gains and losses on the disposal of an entity include the
remaining carrying amount of goodwill relating to the entity
sold.
When acquiring operations where cost is less than the net
value of the acquired assets, borrowings, and any contingent
liabilities, the difference is recognized directly in the income
statement.
Other intangible assets
Other intangible assets include such assets as capitalized
expenditure on IT, patents and trademarks. These assets
have a defined useful life and are carried at cost less
accumulated amortization and impairment losses. The cost
associated with maintaining an intangible asset is recognized
as part of the carrying value or as a separate asset only when
it is probable that the future economic benefit associated with
the asset will flow to the Group and the cost of the asset can
be reliably measured. Other expenditures are expensed as
they arise. Other intangible assets are amortized using the
straight-line method over their estimated useful lives, normally
5 to 10 years.
Property, plant and equipment
Land and buildings comprise mainly factory buildings and
offices. All property, plant and equipment is carried at cost,
less accumulated depreciation. Acquisition cost includes
expenditure that is directly attributable to the acquisition of an
asset.
Subsequent costs are included in the asset’s carrying
amount or are recognized as a separate asset, as appropriate,
only when it is probable that future economic benefits
associated with the assets will flow to the Group and the cost
of the asset can be measured reliably. All other repairs and
maintenance are expensed in the financial period in which
they arise.
Land is not depreciated. Depreciation of other property, plant
and equipment is allocated on a straight-line basis over the
estimated useful lives of the assets to reduce their cost to
residual values. Depreciation periods of between 3 and 15
years are used for plant and machinery, equipment, tools,
fixtures and fittings. Industrial buildings and research laboratories
are depreciated over 20 and 25 years, respectively,
and office buildings over 50 years. When an asset’s carrying
amount may not be recoverable, the asset is immediately
impaired to its recoverable amount.
Assets’ residual value and useful life are reviewed at the
end of every reporting period and adjusted as required.
Gains and losses on disposals are determined by
comparing proceeds with the carrying amount. These are
included in the income statement.
Impairment of non-financial assets
Assets with indefinite useful lives are tested for impairment
annually rather than being amortized. All assets are assessed
in terms of impairment whenever events or changes in
circumstances indicate that an asset’s carrying amount
exceeds its recoverable amount. Impairment reflects the
excess of an asset’s carrying amount over its recoverable
amount. The recoverable amount is either the asset’s fair
value less any selling costs or its value in use, whichever is
greater. For the purposes of assessment, assets are grouped
on the basis of the lowest level at which there are separate
identifiable cash flows (cash-generating units). Assets, other
than financial assets and goodwill, for which impairment loss
was previously recognized, are tested at the end of every
reporting period to ascertain whether any reversal should be
made.
Inventories
Inventories are stated at cost or net selling price, whichever
is lowest. Cost is calculated using the first-in-first-out principle
(FIFO) or weighted average prices. The nature and area of
use of the product determines the method used. The cost of
finished goods and work in progress includes direct material
costs, direct labor and other direct manufacturing costs and
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