Note Summary of significant accounting policies
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
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
The Group classifies its financial assets in the following
categories:
Amortized cost
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.
Measurement
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.
Debt instruments
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
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