23
JOTUN GROUP
5. THE USE OF ESTIMATES WHEN PREPARING THE
ANNUAL ACCOUNTS
The preparation of the Group’s consolidated financial statements requires
management to make judgements, estimates and assumptions that affect
the reported amounts of revenues, expenses, assets and liabilities, and
disclosure of contingent liabilities, at the end of the reporting period.
Uncertainty about these assumptions and estimates could result in
outcomes that require a material adjustment to the carrying amount of
the asset or liability affected in future periods. The estimates and the
underlying assumptions are reviewed on a continuous basis. Amendments
to accounting estimates are recognised in the period in which the estimate
is revised if the amendment affects only that period, or in the period of
the amendment and future periods if the amendment affects both current
and future periods. See note 1 for further details regarding the most
significant estimates, assumptions and judgements made when preparing
the financial statements for the Group.
6 IMPAIRMENT OF FINANCIAL AND NON-FINANCIAL
ASSETS
FINANCIAL ASSETS
Financial assets stated at amortised cost are written down when it is
probable, based on objective evidence, that the instrument’s cash flows
have been negatively affected by one or more events occurring after the
initial recognition of the instrument. The impairment loss is recognised in
the consolidated income statement.
NON-FINANCIAL ASSETS
The Group assesses, at each reporting date, whether there is an indication
that an asset may be impaired. If any indication exists, the Group estimates
the asset’s recoverable amount. An asset’s recoverable amount is the
higher of an asset’s or Cash Generating Unit’s (CGU) fair value less costs of
disposal and its value in use. The recoverable amount is determined for an
individual asset, unless the asset does not generate cash inflows that are
largely independent of those from other assets or groups of assets. When
the carrying amount of an asset or CGU exceeds its recoverable amount,
the asset is considered impaired and is written down to its recoverable
amount.
In assessing value in use, estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to
the asset. In determining fair value less costs of disposal, recent market
transactions are taken into account. If no such transactions can be
identified, an appropriate valuation model is used. These calculations are
corroborated using valuation multiples, quoted share prices for publicly
traded companies or other available fair value indicators.
The Group bases its impairment calculations on cash flow forecasts,
which are prepared separately for each of the Group’s CGUs to which
the individual assets are allocated. These forecasts generally consist of a
detailed cash flow forecast for the first three years of the forecast period,
while cash flows after year three and for the remaining useful life of the
assets are projected based on an estimated long-term growth rate.
Impairment losses are recognised in the consolidated income statement in
expense categories consistent with the function of the impaired asset.
An assessment is made at each reporting date to determine whether there
is an indication that previously recognised impairment losses no longer
exist or have decreased. If such indication exists, the Group estimates the
asset’s or CGU’s recoverable amount. A previously recognised impairment
loss is reversed only if there has been a change in the assumptions used to
determine the asset’s recoverable amount since the last impairment loss
was recognised. The reversal is limited so that the carrying amount of the
asset does not exceed its recoverable amount, nor exceed the carrying
amount that would have been determined, net of depreciation, had no
impairment loss been recognised for the asset in prior years. A reversal
of previous impairment loss is recognised in the consolidated income
statement.
7. REVENUE RECOGNITION
Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the Group and the revenue can be reliably measured,
regardless of when actual payment is made. Revenue is measured at the
fair value of the consideration received or receivable, taking into account
contractually defined terms of payment and excluding taxes or duty.
SALE OF GOODS
Revenue from the sale of goods is recognised when the significant risks
and rewards of ownership of the goods have passed to the buyer, usually
on delivery of the goods. Revenues are presented net of value added tax
and discounts.
INTEREST INCOME
For all financial instruments measured at amortised cost and interest
bearing financial assets classified as available for sale, interest income and
expense is recorded using the effective interest rate (EIR), which is the
rate that exactly discounts the estimated future cash payments or receipts
through the expected life of the financial instrument or a shorter period,
where appropriate, to the net carrying amount of the financial asset or
liability. Interest income is included as finance income in net financial items
in the consolidated income statement.
DIVIDEND
Revenue is recognised when the Group’s right to receive the payment is
established.
8. INCOME TAX
Income tax expense comprises both current and deferred tax, including
effects of changes in tax rates.
CURRENT INCOME TAX
Income tax assets and liabilities for the current period are measured at the
amount expected to be recovered from or paid to the taxation authorities.
The tax rates and tax laws used to compute the amount are those that are
enacted, or substantively enacted, at the reporting date in the countries
where the Group operates and generates taxable income.
Current income tax relating to items recognised directly in equity is
recognised in equity and not in the income statement. Management
periodically evaluates positions taken in the tax returns with respect to
situations in which applicable tax regulations are subject to interpretation,
and establishes provisions where appropriate.
DEFERRED TAX
Deferred tax liabilities and deferred tax assets are calculated on all
differences between the book value and tax value of assets and liabilities.
Deferred tax liabilities and deferred tax assets are recognised at their
nominal value and classified as non-current liabilities and non-current
assets in the balance sheet. Deferred tax assets are recognised when it is
probable that the company will have a sufficient profit for tax purposes
in subsequent periods to utilise the tax asset. Deferred tax liabilities and
deferred tax assets are offset as far as possible as permitted by taxation
legislation and regulations.
OTHER COMPREHENSIVE INCOME
Taxes payable and deferred taxes are recognised in other comprehensive
income to the extent that they relate to items in other comprehensive
income. Items in other comprehensive income are presented net of tax.
9. TANGIBLE ASSETS
Tangible assets are recognised at their cost less accumulated depreciation
and impairment losses. When assets are sold or disposed of, the carrying
amount is derecognised and any gain or loss is recognised in the statement
of income. The cost of tangible assets is the purchase price, including all
costs directly linked to preparing the asset for its intended use.
Depreciation is calculated by estimating the useful life of the assets. The
depreciation period and method are assessed each year. Residual value is
estimated at each year-end, and changes to the estimated residual value or
useful life are recognised as a change in estimate.
Assets under construction are classified as fixed assets and recognised at
cost until the assets are ready for intended use. Assets under construction
are not depreciated until they are ready for intended use.
Borrowing costs are capitalised to the extent that they are directly related
to the purchase, construction or production of a non-current asset that
takes a substantial period of time to get ready for its intended use. The
interest costs are accrued during the construction period until the noncurrent
asset is capitalised. Borrowing costs are allocated to respective
asset and depreciated over the estimated useful life of the asset.
10. INTANGIBLE ASSETS
Intangible assets are measured at cost less any amortisation and
impairment losses.
Development expenditures attributable to an individual project are
recognised as an intangible asset when the Group can demonstrate:
• The technical feasibility of completing the intangible asset so that it will
be available for use or sale