Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements option, or in case the purchase option is exercised, the right of use asset is depreciated over the Accounting policies applied The accounting policies applied to financial assets are as follows: underlying asset’s useful life. to financial assets For all classes of financial assets, purchases and sales are recognized on the trade date (the The carrying amount of the right of use assets is derecognized at the end date of the contract or date on which the Group commits to purchase or sell the asset). Financial assets at fair value before in case of early termination. through profit or loss are initially recognized at fair value with applicable transaction costs immediately recognized in the income statement. Financial assets measured at amortized costs As lessor are initially recognized at fair value plus directly attributable transaction costs. Trade receivables that do not have a significant financing component are initially measured at their transaction The Group classifies its leases as operating leases or finance leases and accounts for those two price. Financial assets are derecognized when the rights to receive cash flows from the assets types of leases differently. have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. (2.10) Financial assets For the purpose of identifying accounting policies applied, after initial recognition, financial After initial recognition, loans and receivables are measured at amortized cost determined using assets are classified as subsequently measured: the effective interest method less allowances for expected credit losses (ECL). Financial assets • at amortized cost and at fair value through profit or loss are subsequently measured at fair value, with realized and • at fair value through profit or loss (FVP&L). unrealized gains and losses arising from changes in the fair value recognized in the income The classification is based on the business model for managing the respective financial assets statement in the period they arise. and their contractual cash flow characteristics. Management determines the classification of its Financial assets and liabilities are offset and the net amount reported in the balance sheet, when financial assets at initial recognition and re-evaluates this designation when, and only when, it there is a legally enforceable right to offset the recognized amounts and there is an intention to changes the business model for managing the related financial assets. settle on a net basis or realize the asset and settle the liability simultaneously. Financial assets measured A financial asset is measured at amortized cost if: The fair values of quoted investments are based on current bid prices. If current bid prices are at amortized cost not available, fair value is determined using other information such as that derived from the • it is held within a business model whose objective is to hold financial assets to market prices of other similar instruments, discounted cash flow analysis and option pricing collect contractual cash flows, and models refined to reflect the issuer’s specific circumstances. • the contractual terms give rise to cash flows that are solely of payments of principal and interest (SPPI). ECL are recognized for financial assets measured at amortized cost and receivables with significant financing component. A credit loss is the present value of the difference between the derivative financial assets with fixed This category includes loans and receivables, which are non- contractual cash flows and the cash flows that the entity expects to receive, discounted at the or determinable payments that are not quoted in an active market. They arise when, in the original effective interest rate. ECL are measured in a way that reflects an unbiased and ordinary course of business, the Group provides money, goods or services directly to a debtor probability-weighted amount that is determined by evaluating a range of possible outcomes, the with no intention of trading the receivable. They are included in current assets, except for time value of money and available, reasonable and supportable information. maturities greater than 12 months after the balance sheet date. These are classified as non- For trade receivables and contract assets that do not contain a significant financing component, current assets. Loans and receivables are included in ‘trade and other receivables’ (see notes the Group elected to adopt the simplified approach, which allows entities to use a provision (2.12) and (14)). matrix to recognize lifetime ECL. The provision matrix is based on historical loss patterns, reflecting the customers’ payment behavior in the different countries, adjusted for forward- Financial assets measured This category has two subcategories: financial assets held for trading and those mandatorily looking estimates. at fair value through profit measured at fair value through profit or loss. A financial asset is classified as held for trading if or loss acquired principally for the purpose of selling in the short-term or if so designated by Trade receivables are identified according to one of the three following categories: normal, management. Derivatives are also categorized as held for trading unless they are designated as doubtful and bad. The amount of the loss allowances is measured at initial recognition and hedges. A financial asset is mandatorily measured at fair value through profit or loss if: throughout the life of the receivable, using an aging calculation applied to all trade receivables, which reflects the expected credit losses that result from all possible default events over the • it is not held within a business model whose objective is to hold financial assets to expected life of the receivable. When information has been obtained indicating that non- collect contractual cash flows or to hold them to collect contractual cash flows and off is sell, and/or collection risk exists on the financial asset the trade receivables are fully impaired. A write- • the contractual terms of the financial asset do not meet the SPPI conditions, and/or made when all or part of the financial asset is deemed uncollectible or forgiven. • it is not held for trading. For receivables with significant financing component the Group elected to calculate the 12- Assets in this category are classified as current assets if they are either held for trading or are month expected credit loss model based on the historical default rates. expected to be realized within 12 months of the balance sheet date. Further information concerning financial assets measured at fair value through profit or loss is given in notes (12) (2.11) Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined using the and (17). standard cost method with variances capitalized at acquisition and production and recognized in the income statement together with the standard cost of inventory at time of sale. Standard costs are annually reviewed and updated in light of current conditions. Cost determined under this method approximates cost determined under the FIFO method. 2020 Financial Report | 24 2020 Financial Report | 25