Axactor Annual Report 2016

disposed of. The same principle is used for allocation of goodwill when the group reorganizes its businesses. Customer relationships and Databases Separately acquired customer relationships and databases are shown at historical cost. The assets acquired in a business combination are recognised at fair value at the acquisition date. Customer relationships and databases that have a finite useful life and are carried at cost less accumulated amor- tization. Amortization is calculated using the straight-line method to allocate the cost over their useful lives of 3 to 6 years. Development costs on an individual project are recog- nised as an intangible asset only when there is an identifiable asset that will generate expected future economic benefits and when the cost of such asset can be measured reliably, otherwise development costs are recognised as an expense when incurred. 2.5 Tangible fixed assets Tangible fixed assets are reported at cost in the balance sheet, with a deduction for accumulated depreciation and any impairment. Depreciation is made on a straight-line basis over the asset’s estimated useful life, which is assessed on an individual basis, ranging from 3 to 10 years. 2.6 Financial instruments Financial instruments reported as assets in the balance sheet include: long-term receivables, other receivables, prepaid expenses and accrued income, liquid funds, accounts receivable, and short-term investments. All financial assets are classified as loans and receivables, and are reported at amortized cost, except for other long term investments, which is classified as assets held for sale, see note 18. The liabilities consist of long-term liabilities, convertible loans, other liabilities, accrued expenses and prepaid income and accounts payable. The liabilities are classified as other financial liabilities and are reported as amortized cost, except for the put/call option for CS Union, recorded at fair value on the profit or loss, see note 25. Financial instruments are initially recorded at acquisition value corresponding to the instru- ment’s fair value. A financial asset or liability is reported in the balance sheet as soon as the Company has a contractual commitment regarding such instrument. Axactor does not have any derivatives and does not for the time being engage in hedging. Cost of interest is calculated using the effective interest rate method. A financial asset is considered for exclusion when the contractual rights to the cash flows from the financial asset expire, or the Group has either transferred the contractual right to receive the cash flows from that asset, or has assumed an obligation to pay those cash flows to one or more recipients, subject to certain criteria. A financial liability is considered for exclusion when the liability is repaid by Axactor. Financial instruments are reported using the fair value, accumulated value or acquisition value, depending on the initial categorization under IAS 39. On each reporting occasion, the company performs an impairment test to determine whether objective indications exist of the need to write-down a financial asset or group of financial assets. 2.6.1 Non-Performing loans Non-performing loans consists of portfolios of delinquent consumer debts purchased significantly below nominal value of debt. Purchased loans are classified as non-performing loans together with transactions costs and recognized at amortized cost according to the effective interest method. Income from purchased debt are recognized in the income statement as collected amount less amortization, according to the rules for loans and receivables in IAS 39. The Group determines the carrying value of each portfolio by projecting future cash flows that is discounted to present value using the initial effective interest rate, determined at the date the portfolio was acquired, based on the relation between cost and estimated future cash flow. Changes in the carrying value are recognized in the income statement on the revenue line as amortization. Current cash flows are monitored and updated depending on several factors like collections achieved, any repayment arrangements with debtors or other external factors. Updated cash flow forecasts are made at portfolio levels. Under certain circumstances, also the initial internal interest rate can be adjusted without any change in the carrying value of the portfolios. 2.6.2 Trade receivables Trade receivables are recognized at the amount expected to be received (initially fair value minus impaired receivables). Evaluation of the value of outstanding accounts receivables are based on individually judgment and/or from historical experience. 2.6.3 Trade and other payables Trade payables are recognized at the original invoiced amount. Other payables are recognized initially at fair value. 2.6.4 Client funds Client funds arises from cash received on collections on behalf of a client. Collections are kept on separate restricted cash account and are reflected simultaneously as a liability. 2.6.5 Cash and Cash equivalent Cash and cash equivalents include cash at banks and on hand and other short-term highly liquid investments with original maturities of three months or less. In the consolidated bal- ance sheet, any bank overdrafts are shown within borrowings in current liabilities. 2.7 Employee benefits Pension obligations The Group’s pension obligations vary between countries depending on the local legislation and different pension systems, please see note 6 and 24 for further descriptions. Axactor AB | Annual report 2016 33