Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (2.16) Employee benefits (2.12) Trade receivables Trade receivables (see the financial assets measured at amortized cost category of financial assets in note (2.10) above) are recognized initially at their transaction price and subsequently Pension obligations Group companies operate various post-employment schemes, including both defined benefit measured at amortized cost using the effective interest method, less allowances for the expected and defined contribution pension plans. These schemes are generally funded through payments credit losses. to insurance companies or trustee-administered funds, determined by annual actuarial valuations. (2.13) Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks and other Long-service benefits Some Group companies provide jubilee and other similar long-service benefits. The entitlement short-term highly liquid investments with original maturities of three months or less. to these benefits is usually conditional on the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment using an accounting (2.14) Borrowings Borrowings are recognized initially at fair value net of transaction costs incurred. Borrowings are methodology similar to that used for defined benefit pension plans. subsequently measured at amortized cost with any difference between the amount at initial recognition and the redemption value being recognized in the income statement over the period Variable compensation The Group recognizes a liability and an expense for variable compensation based on changes in of the borrowings using the effective interest method. Borrowings are classified as current key financial results, such as sales, operating profit, net income and capital employed as liabilities unless the Group has an unconditional right to defer settlement of the liability for at specified in the employment contracts. least 12 months after the balance sheet date. The Group capitalizes borrowing costs directly attributable to the acquisition, construction or (2.17) Provisions Major types of provisions recognized by the Group include provisions for restructuring costs, production of a qualifying asset as part of the cost of that asset. product liability and legal claims. Provisions for restructuring costs mostly comprise expected lease termination penalties and employee termination benefit payments. Where provisions relate to a number of similar obligations the likelihood that an outflow will be required in settlement is (2.15) Income taxes The tax expense for the period comprises current and deferred tax. Tax is recognized in the determined by considering the class of obligations as a whole. A provision is then recognized income statement, except to the extent that it relates to items recognized in OCI. In this case, even if the likelihood of an outflow with respect to any one item included in the same class of the tax is also recognized in OCI. obligations may be low. Current income taxes The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company and its subsidiaries (2.18) Trade and other payables Trade and other payables are recognized initially at fair value and subsequently measured at operate and generate taxable income. Management periodically evaluates positions taken in tax amortized cost using the effective interest method. returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. If late payment interests and/or penalties or fines are due in connection with (2.19) Revenue recognition and The Group manufactures and develops a range of products and services for the construction additional direct taxes that are payable as the result of a tax audit, a voluntary disclosure, the contract liabilities and energy sectors. The Group has implemented a five-step model applicable to all contracts amendment of a tax return or the like, such payments are considered as income taxes. with customers and has disaggregated revenue from contracts with customers into the following categories of revenue recognition patterns: sales contracts of goods, warranties (covering Deferred income taxes Deferred income taxes are provided in full, using the liability method, on temporary differences repairs) and services. These categories were analyzed with the five-step approach to identify all arising between the tax bases of assets and liabilities and their carrying amounts in the performance obligations and to allocate the transaction price to each performance obligation. 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 Net sales of goods and services time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted Revenue from the sale of goods is recognized in the income statement at a point in time, when for. Deferred income tax is determined using tax rates that have been legally enacted or control of the products has transferred, typically when the products are delivered to the customer substantially enacted by the balance sheet date and are expected to apply when the related and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. deferred income tax asset is realized or the deferred income tax liability is settled and reflects Revenues related to goods for which the control has not yet been transferred to the customer uncertainty related to income taxes, if any. Deferred income tax assets are recognized to the will be recognized only in the following period. extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising on Revenue from services rendered is recognized at a point in time or over a period of time, investments in subsidiaries, associates and joint arrangements except where the timing of the depending if the performance obligation is satisfied at a point in time or over a period of time. All reversal of a temporary difference is controlled by the Group and it is probable that the temporary revenues from sales of goods and services rendered are recognized at normal selling price less difference will not reverse in the foreseeable future. applicable trade discounts and rebates, individually determined in the markets. Revenue from sales of goods with significant financing component relates to finance lease and is recognized in the period the lease commences while the applicable interest income is recognized on an actuarial basis over the lease term. Revenue from operating leases is recognized over the lease term. 2020 Financial Report | 26 2020 Financial Report | 27