Note Summary of significant accounting policies
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.
Equity instruments
The Group subsequently measures all equity investments at
fair value through profit or loss.
Impairment
The Group assesses on a forward-looking 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
line item.
Derivatives
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
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
standardized derivatives and sales and purchase contracts
which are not deemed to be for own use (and consequently
should be recognized as derivatives). According to IFRS 9,
only contracts not designated for physical delivery may be
accounted for as derivatives. AAK’s business model permits
(enables) the net settlement of purchase and sales contracts
entered into. The full fair value of a hedging derivative is
classified as a non-current asset or liability when remaining
maturity of the hedged item is more than 12 months. It is
classified as a current asset or liability when the remaining
maturity of the hedged item is less than 12 months.
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 recognized on the same line item 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 in inventory.
Changes in fair value of raw material in inventory are
accounted for as a part of Current assets and liabilities in the
balance sheet. The gain or loss attributable to the ineffective
portion is recognized with immediate effect in “Raw materials
and consumables and changes in inventory”.
When forward contracts are used to hedge fair value the
Group generally designates only the change in fair value of
the forward contract related to the spot component as the
hedging instrument. The change in the forward element of the
contract that relates to the hedged item is recognized within
Operating profit.
Sales and purchase contracts
AAK applies the fair value option to binding commitments
(sales and purchase contracts) for own use since this offset
the change in fair value of derivatives not designated for
hedge accounting (reducing accounting mismatch) and AAK’s
business model enables the net settlement of purchase
and sales contracts entered into for physical delivery (the
contracts are readily convertible to cash). Assets in this
category are classified as current assets as they are expected
to be settled within 12 months.
Determining fair value
The fair value of instruments that do not have listed prices is
determined using valuation techniques such as discounted
cash flow models, in which all assessed and determined cash
flows are discounted using a zero-coupon yield curve. The fair
value of derivatives is determined using valuation techniques.
The valuation is based on models that discount cash flows
using forward curves for underlying variables such as raw
materials and exchange rates. The assessed and determined
cash flows are discounted by a zero-coupon interest rate
curve. The Group’s credit risk is taken into consideration in
the valuation at fair value.
Accounts receivables
Accounts receivables are recognized initially at fair value
and thereafter at amortized cost using the effective interest
method, less provisions for impairment, see above about
impairment. Provisions are recognized in the income statement
as “Other external expenses”.
Equity
Ordinary shares are classified as share capital. Transaction
expenses that are directly attributable to new share issues or
options are recognized, net of tax, in equity as a deduction
from the proceeds.
Premium received for share warrants issued at market
price has been recognized as an increase in funds brought
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