107 Cloudberry Annual report 2021 Financial statements Note 3 Key accounting estimates and judgements The use of reasonable estimates and judgements is a critical element in preparing the financial statement of the Group. Due to the level of uncertainties inherent in Cloudberry’s business activities, management must make certain estimates and judgement that affect the reported values of assets, liabilities, revenues, expenses, and related disclosures. Management bases its estimates on historical experience, current trends and other various assumptions that the company’s management believes to be relevant at the time the consolidated financial statements are prepared. Long term price forecast for power One of the critical assumptions used by management in making business decisions is the long-term price forecast for power and the related market developments. The assumption is also critical input for management related to financial statement processes such as: · Allocation of fair value in business combination note 5 · Impairment testing note 19 Management use Volue (former Wattsight), and their base case for long term power price forecasts. Volue is an external source of information which ensures an unbiased estimate. Management review and update the forecast continuously, based on market development. Fair value measurement Significant judgement is applied in the valuation of the Group’s contracts categorised within level 2 in the fair value hierarchy levels. Where fair value measurement cannot be derived from publicly available information, they are estimated using models and other valuations methods. To the extent possible, the assumptions and inputs used take into account externally verifiable inputs. However, such information is by nature subject to uncertainty, particularly where comparable market-based transactions often do not exist. In such cases management is required to make market-based assumptions to find the best estimates. Assessments in Business Combinations Significant management judgement is required in the assessment of a business combination. This includes determining if an acquisition is a business combination or an asset acquisition, determining an acquiring part and determining the allocation of fair value ta assets and liabilities acquired. To determine if the acquisition is a business combination or an asset acquisition, management has to analyse and assesses whether the acquired entity meets the criteria of a business. Management’s judgement is required to assess if the inputs and related processes in place for the acquired have the ability to create outputs from the acquired unit. For each acquisition it is be made a specific assessment weather it is a business combination or an asset acquisition. If regarded as a business combination IFRS 3 Business Combinations will be applied, while if an asset it will be either IAS 2 inventory or IAS 16 Property plant and equipment that will be applied. The latter relates to the type of assets being acquired. For acquisitions that consist of a single development project, single power plant ready to construct or assets that do not have any clearly defined input or output, the acquisition will often be accounted for as an asset acquisition. Acquisitions that consist of producing assets, projects organized with key employees, business processes in place and defined inputs and outputs from the processes, the acquisition will often be accounted for as business combination. However, the specific assessment will be needed to conclude on the treatment for each acquisition. Allocation of fair value, the purchase price allocation, for the assets and liabilities acquired is based on a specific assessment of the different components of the acquisition. Significant management judgement is required in combination with valuation methods, assessments made in the acquisition process in combination with a specific evaluation of the acquired assets and liabilities.
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