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Notes to the consolidated financial
statements, REC Group
REC Annual Report 2011
Commitment fees for the bank credit and guarantee facilities are
recognized as part of interest expenses as incurred.
REC ASA established a fixed rate convertible bond in the fourth
quarter of 2009 that is denominated in a foreign currency (EUR).
Following IFRIC guidance, a foreign currency convertible bond is not
a compound financial instrument and is classified wholly as a
liability in the financial statements. Following IAS 39, by definition,
foreign currency denominated convertible debt contains embedded
derivative in relation to the conversion option, and the foreign
exchange rates must be remeasured to market at reporting date.
For the 2009 convertible bond, REC recognizes the change in the
fair value of the whole convertible bond, and not just the embedded
derivative, through profit or loss as a part of financial income or
expenses.
RECASA established a fixed rate Norwegian Krone bond at the end of
the third quarter of 2009 and repurchased parts in 2011 and issued
further Norwegian Krone bonds. REC has fair value hedged the NIBOR
parts of the fixed interest using interest rate swaps. The change in
fair value of the hedged part is recognized through profit or loss.
A financial liability (or a part of a financial liability) is removed from
the statement of financial position when, and only when, it is
extinguished—i.e. when the obligation specified in the contract is
discharged or cancelled or expires. An exchange between REC and
an existing lender of debt instruments with substantially different
terms shall be accounted for as an extinguishment of the original
financial liability and the recognition of a new financial liability.
Similarly, a substantial modification of the terms of an existing
financial liability or a part of it shall be accounted for as an
extinguishment of the original financial liability and the recognition
of a new financial liability. The difference between the carrying
amount of a financial liability (or part of a financial liability)
extinguished or transferred to another party and the consideration
paid, including any non-cash assets transferred or liabilities
assumed, shall be recognized in profit or loss. The repayment and
cancelling of debt in 2010 in relation to the establishment of the
new debt structure and repurchase of parts of the Norwegian Krone
bonds in 2011 were accounted for as extinguishment of debt.
2.15 INVENTORIES AND CONSTRUCTION CONTRACT COSTS
Inventories are stated at the lower of cost or net realizable value.
Cost for inventory with different nature or use is determined using
the first-in, first-out (FIFO) or average cost method. The cost of
finished goods andwork in progress comprises rawmaterials, direct
labor, other direct costs and related production overheads (based on
normal operating capacity). Net realizable value is the estimated
selling price in the ordinary course of business, less the estimated
variable and incremental costs to complete and sell the asset.
The REC Group is integrated in the value chain, and REC entities sell
goods to other REC entities. Consequently, finished goods for one
REC entity become rawmaterials or work in progress for another
REC entity. The classification by the separate entities is also used in
the classification in REC’s consolidated financial statements.
Eligible costs relating to building of PV systems for sale in the
ordinary course of business in REC Systems has been accounted for
as inventories or construction contract costs, as applicable.
2.16 INCOME TAX
Income tax expense represents the total of the tax currently
payable (current tax) and the change in deferred tax allocated to the
statement of income. The current tax is based on taxable profit (and
in some instances loss) for the year. Taxable profit/loss differs from
profit/loss before tax as reported in the statement of income
because it excludes items of income or expense that are taxable
or deductible in other years (temporary differences) and it further
excludes items that are never taxable or deductible (permanent
differences). Deferred tax is provided in full, using the liability
method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the consolidated
financial statements. However, if the deferred income tax arises
from initial recognition of an asset or liability in a transaction other
than a business combination, that at the time of the transaction
affects neither accounting nor taxable profit nor loss, it is not
recognized. For the REC Group this is relevant for some buildings
in Singapore and some government grants.
Current and deferred tax is determined using tax rates and laws
that have been enacted or substantially enacted at the reporting
date and are expected to apply when the related tax asset is
realized or the tax liability is settled. Deferred tax assets are
recognized to the extent that it is probable that future taxable
profit will be available against which the temporary differences
can be utilized (see note 4.2 (C)). Deferred income tax assets and
liabilities are offset when there is a legally enforceable right to
offset current tax assets against current tax liabilities and the
REC Group intends to settle its current tax assets and current tax
liabilities on a net basis.
Deferred tax is provided on undistributed earnings in subsidiaries,
associates and jointly controlled entities to the extent that the
future dividend is taxable, except where the timing of any dividend
is controlled by the REC Group and it is probable that the dividend
will not be distributed in the foreseeable future. For REC this is in
practice only relevant for undistributed earnings fromREC Silicon
in the USA, on which no deferred tax has been recognized (see notes
4 and 18).
2.17 PROVISIONS
Provisions for environmental restoration, asset retirement
obligations, restructuring costs, long-term bonuses, product
warranties, onerous contracts, loss on financial guarantees and
legal claims are recognized when: the REC Group has a present legal
or constructive obligation as a result of past events; it is probable
that an outflow of resources will be required to settle the obligation;
and the amount has been reliably estimated. Provisions are not
recognized for future operating losses. Where there are a number of
similar obligations, the likelihood that an outflowwill be required in
settlement is determined by considering the class of obligations as
a whole. A provision is recognized even if the likelihood of an
outflowwith respect to any one item included in the same class of