Note Summary of significant accounting policies
a reasonable allocation of indirect manufacturing expenses
based on normal production capacity, excluding borrowing
costs. Net selling price is the estimated sale price in the
ordinary course of business, less costs of completion and
applicable variable costs to sell.
Financial income and expenses
Financial income consists of interest income on funds
invested, dividend income and gains on hedging instruments
recognized in profit or loss. Dividend income is recognized
when the right to receive payment has been established.
Results from the sale of financial instruments are recognized
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 recognized in profit or loss. Borrowing expenses
are recognized 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
capitalized during the past two years. Exchange gains and
losses are recognized net.
Financial instruments as from January 1, 2018
From January 1, 2018 the group classifies its financial assets
in the following categories:
Fair value through profit or loss
The classification is dependent on AAK’s business model for
managing the financial assets and the contractual terms of
the cash flows. Management establishes the classification of
financial assets at initial recognition. Management reclassifies
debt instruments when and only when its business model for
managing those assets changes.
At initial recognition, the group measures a financial asset at
its fair value plus, in case of a financial asset not at fair value
through profit or loss, transaction costs that are directly attributable
to the acquisition of the financial asset. Transaction
costs of financial assets carried at fair value through profit or
loss are expensed in profit or loss.
Recognition and derecognition
A financial asset or financial liability is recognized in the
balance sheet when AAK enters a contract for the instrument
(i.e. on the relevant business day).
A financial liability is recognized when the counterparty has
performed and a contractual duty to pay arises, even if no
invoice is received.
A financial asset is derecognized 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.
All of AAK’s debt instruments are held for collection of
contractual cash flows where those cash flows represent
solely payments of principal and interest and are consequently
measured at amortized cost. These are included in
current assets, except for items with a maturity of more than
12 months after the end of the reporting period, which are
classified as non-current assets. Interest income from these
financial assets are included in financial income using the
effective interest method. The Group’s financial instruments
measured at amortized cost consist of accounts receivables
and other receivables, as well as cash and cash equivalents
in the balance sheet.
The group subsequently measures all equity investments at
fair value through profit or loss.
From January 1, 2018, the Group assesses on a forwardlooking
basis the expected credit losses associated with its
debt instruments carried at amortized cost. The impairment
methodology applied depends on whether there has been a
significant increase in credit risk. For trade receivables, the
group applies the simplified approach permitted by IFRS 9,
which requires expected lifetime losses to be recognized
from initial recognition of the receivables. The expected credit
loss rates are calculated based on payment profiles and the
corresponding historical credit losses experienced within the
same period. The historical loss rates are adjusted to reflect
current and forward-looking information on macroeconomic
factors affecting the ability of the customers to settle the
receivables. Trade receivables and contract assets are written
off when there is no reasonable expectation of recovery.
Indications that there is no reasonable expectation of recovery
include, amongst others, the failure of a debtor to engage in
a repayment plan with the group. Impairment losses on trade
receivables and contract assets are presented as net impairment
losses within operating profit. Subsequent recoveries of
amounts previously written off are credited against the same
Derivative instruments are recognized in the balance sheet on
the date of contract and at fair value, both initially and upon
subsequent revaluation. The method of recognizing 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 has identified
hedging of fair value regarding a recognized asset or liability
or a firm commitment (fair-value hedging).
When the transaction is undertaken, the Group documents
the economic relationship between the hedging instrument
and the hedged item, as well as the hedge’s role in the