Note Summary of significant accounting policies
Leases up to December 31, 2018
Leasing is classified as operating leasing when the risks and
benefits of ownership are retained by the lessor. All leasing
agreements within the Group are classified as operating
leases. Operating lease payments are recognized in the
income statement on a straight-line basis over the period of
the lease.
Leases as from January 1, 2019
The Group leases various land, buildings, machinery, equipment
and vehicles. Rental contracts are typically made for
fixed periods of 10 to 30 years for land, 5 to 20 years for buildings
and 3 to 5 years for vehicles but may have extension
options as described below. Lease terms are negotiated on
an individual basis and contain a wide range of different terms
and conditions.
Leases are recognized as a right-of-use asset and a
corresponding liability at the date at which the leased asset
is available for use by the Group. Each lease payment is
allocated between the liability and finance cost. The finance
cost is charged to profit or loss over the lease period so as to
produce a constant periodic rate of interest on the remaining
balance of the liability for each period. The right-of-use asset
is depreciated over the shorter of the asset’s useful life and
the lease term on a straight-line basis. Assets and liabilities
arising from a lease are initially measured on a present value
basis. Lease liabilities include the net present value of the
following lease payments:
Fixed payments (including in-substance fixed payments),
less any lease incentives receivable in connection with the
inception date of the lease
Variable lease payments that are based on an index or
a rate, measured based on the index or rate at initial
recognition
Amounts expected to be payable by the lessee under
residual value guarantees
The exercise price of a purchase option if the lessee is
reasonably certain to exercise that option
Payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be readily determined,
which is generally the case for leases in the Group, the
lessee’s incremental borrowing rate is used. The incremental
borrowing rate is the rate that the individual lessee would
have to pay to borrow the funds necessary to obtain an asset
of similar value to the right-of-use asset in a similar economic
environment with similar terms, security and conditions
considering the entity’s financial credit ability.
Right-of-use assets are measured at cost comprising the
following:
The amount of the initial measurement of lease liability
Any lease payments made at or before the commencement
date less any lease incentives received in connection with
the inception date of the lease
Any initial direct costs
Restoration costs of the underlying asset in accordance
with the lease agreement.
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
as part of the product cost as it arises. The development
work consists primarily of work aimed at optimizing the
attributes and function of speciality oils and 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.
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