Page 76 - EVRY Annual Report 2012

Annual Accounts Group 76
The smallest unit of a particular asset which can be separately assessed as a valuation unit for the purpose of determining
whether there has been a fall in value is determined by the lowest level at which it is possible to identify incoming cash
flow independent of cash flow from other groupings of the same class of asset. Inmost cases, the group’s business areas
represent the smallest valuation unit for this purpose.
An asset is written down to the recoverable amount if the recoverable amount is less than the carrying value before write-
down.Thewrite-down is applied first to any goodwill and thereafter to the book value of the unit’s other assets on a pro-
portional basis relative to the book value of the unit’s specific assets. Impairment losses are charged to profit and loss in the
period the impairment loss is identified, and reduce the carrying value of the asset by an equivalent amount. Impairment
losses, except for impairment of goodwill, may subsequently be reversed, to the extent that the reason for the impairment
loss no longer applies. Any impairment is included as part of write-downs in the presentation of comprehensive income.
Leasing
Leasing of assets where the lessor retains the major part of risk and control are classified as operational leases. Other leas-
ing contracts are treated as financial leasing.
Operational leasing
The leasing costs of operational leases are allocated on a linear basis over the period of the lease, and are classified as cost
of goods sold or other operating costs in the profit and loss account. See ‘Recognition of revenue and costs’ above for
more details on cost of goods sold.
Financial leasing
Financial leasing contracts are capitalised as assets and liabilities in the statement of financial position in an amount
equivalent to the operating asset’s fair value at the time the leasing contract was entered into or, if lower, the net
discounted value of the future minimumpayments under the terms of the lease contract. The liability to the lessor is
included in the statement of financial position as a financial lease liability. Lease payments are recognised in the accounts
as interest expense and a reduction in the lease liability. Leased assets are depreciated over the expected useful life in
accordance with the depreciation plan for owned assets. If it is not likely that the group will take over the asset upon the
expiry of the leasing contract, the asset is depreciated over the shorter of the life of the leasing contract and the deprecia-
tion period applied for equivalent assets owned by the group.
Financial derivatives
The group’s financial derivatives consist almost entirely of hedging derivatives. All purchases and sales of financial
instruments are recognised on the transaction date. Fair value is used as the cost price. Changes in fair value for deriva-
tives that meet the requirements for cash flow hedging are reported in the statement of comprehensive income as “other
income and costs”. Derivatives that are not classified as hedging instruments are classified as available for sale and valued
at fair value. Changes in the fair value of such derivatives are recognised as financial income/financial expense.
Hedging
The group has established a strategy to hedge the currency and interest rate risks related to its international investments.
The strategy is designed to ensure a high degree of predictability in currency gains/losses and interest costs. Derivative
contracts are recognised as hedging instruments if they satisfy the following criteria:
a) hedging is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable
to the hedged risk, with hedge effectiveness in the range 80–125 %,
b) the effectiveness of the hedging can be reliably measured,
c) there is adequate documentation on entry into the hedging to show that the hedging is highly effective,
d) hedging is reviewed regularly and has proved effective throughout the reporting periods for which it was
intended.
The group has hedged (cash flow hedging) part of its net investment in Swedish kroner. Changes in the value of currency
derivatives classified as hedging instruments are netted against financial income/financial expense in the consolidated
accounts and form part of comprehensive income.
In addition, the group hedges part of its exposure to the electrical power market by purchasing forward contracts. The
efficiency of this hedging in terms of the price achieved is measured by comparing changes in the fair value of the deriva-
tive (the financial contract) against the physical supply of electricity (price).
The hedging instrument in cash flowhedges is recognised at fair value at the date of the financial position statement. If the
hedging is evaluated as effective, the change in value is recognised as part of “other income and cost”. If the hedging is eval-
uated as not effective, the change in value is recognised as other financial income/expense in the profit and loss account.
Hedging instruments are classified as non-interest bearing liabilities or receivables in the statement of financial position.
Inventories
Inventories are valued at the lower of purchase price and net realisable value. Net realisable value is defined as the ex-
pected sale price under normal commercial conditions with a deduction for sales costs. Purchase price is determined on
the basis of average cost price.