The annual financial statements have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting practice.
Use of estimates
The preparation of financial statements in accordance with the Norwegian Accounting Act requires the use of estimates. It also requires management to exercise its judgement in applying the company’s accounting policies. Areas which make extensive use of judgements or involve a high degree of complexity, and areas where assumptions and estimates are material to the annual financial statements, are described in the notes.
Shares in subsidiaries and associates
Subsidiaries are companies over which the parent company exercises control, and thus a controlling influence over the entity’s financial and operating strategy, normally through (direct or indirect) ownership of more than half of the voting rights. Investments conferring 20–50 per cent of the voting rights and significant influence are recognised as investments in associates.
Accounting policies for shares in subsidiaries, joint ventures and associates.
Investments in subsidiaries and associates are recognised in accordance with the cost method in the single entity financial statements. The cost is increased when funds are added as a result of capital increases, or when subsidiaries receive group contributions. Dividends received are generally recognised as income in the income statement. Dividends that exceed the share of retained earnings after the purchase are recognised as a cost reduction. Dividends/group contributions from subsidiaries are recognised in profit and loss in the same year as the subsidiary allocated the amount. Dividends from other companies are recognised as financial income when the dividend is approved.
In the consolidated financial statements, the gross method is used for investments in joint ventures. The application of this method results in the company’s share of accounting items being incorporated line by line. The equity method is used for investments in associates. The application of this method results in the book value in the balance sheet corresponding to the share of the equity in the associate, and the share of the profit or loss in the income statement is based on the share of the associate’s financial result after tax. With both the gross method and the equity method, the financial result and balance sheet total are adjusted for any residual excess values arising on the purchase and unrealised internal profits.
Basis of consolidation
Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date).
In the consolidated financial statements, the item ‘shares in subsidiaries’ is replaced with the subsidiary’s assets and liabilities. The consolidated financial statements are prepared as if the Group were a single economic entity. Transactions, unrealised profits and intercompany balances are eliminated on consolidation.
Acquired subsidiaries are recognised in the consolidated financial statements based on the parent company’s cost. Acquisition cost is allocated to identifiable assets and liabilities in
the subsidiary, which are entered in the consolidated financial statements at fair value on the acquisition date. Any excess values other than those that can be allocated to identifiable assets or liabilities are recognised in the balance sheet as goodwill. Goodwill is recognised as a residual in the balance sheet at the percentage observed in the acquisition transaction. Excess values in the consolidated financial statements are amortised over the expected lifetime of the purchased assets.
The balance sheets of foreign subsidiaries are translated at the exchange rate in effect on the reporting date, while the income statement is translated at the average exchange rate. Any material transactions are translated at the daily transaction rate. All translation differences are recognised directly as changes in equity.
Non-controlling interests’ share of profit or loss after tax and share of equity are presented on separate lines.
Revenue from the sale of goods and services is recognised at the fair value of the consideration received, net of Value Added Tax, returns, rebates and other discounts. Sales of goods are recognised in income when the company has delivered its products to the customer and there are no unfulfilled obligations that could affect the customer’s acceptance of the delivery. Delivery is not complete until the products have been sent to the agreed location and the risk of loss and obsolescence has been transferred to the customer.
Services are recognised in income as they are performed.
Bonus and discount agreements with suppliers
Different types of supplier bonuses and discounts can be classified on different lines in the financial statements. Bonuses and discounts relating to the purchase of goods are presented as a reduction in the cost of goods sold. Payments from suppliers to cover a specific marketing campaign are included as a reduction in operating expenses.
The tax expense in the income statement comprises both tax payable for the accounting period and changes in deferred tax. Deferred tax is calculated on the basis of temporary differences between carrying amounts and the tax base, as well as any tax losses carried forward at the end of the financial year. Tax-increasing and tax-reducing temporary differences that reverse or may reverse in the same period are offset. Deferred tax assets on net tax-reducing differences that have not been eliminated and tax losses carried forward are based on estimated future earnings.
Tax reductions arising from group contributions paid, and tax on group contributions received that are recognised as a reduction in the book value of an investment in a subsidiary, are posted directly against tax in the balance sheet (against tax payable if the group contribution affects tax payable, and against deferred tax if the group contribution affects deferred tax). Deferred tax in both the single entity financial statements and the consolidated financial statements is recognised at the nominal amount.
Classification of balance sheet items
Assets intended for permanent ownership or use are classified as non-current assets. Assets related to the production cycle are classified as current assets. Other receivables are classified as current assets if they are to be repaid within one year. Similar criteria have been used for the classification of liabilities. First-year repayments on long-term receivables and liabilities are nevertheless not classified as current assets and current liabilities.
The acquisition cost of an asset comprises its purchase price, less bonuses, discounts, etc., plus purchase costs (shipping, import duties, non-refundable public charges and other direct acquisition costs). For purchases in foreign currencies, the asset is recognised at the exchange rate in effect on the transaction date, or the forward rate if a forward contract is used.
For property, plant and equipment and intangible assets, acquisition cost also includes expenses directly attributable to preparing the asset for use, for example, the cost of testing an asset.
Intangible assets and goodwill
Goodwill has arisen in connection with the acquisition of subsidiaries and non-controlling interests. Goodwill is amortised in accordance with a predetermined plan.
Development expenses are recognised in the balance sheet to the extent that a future financial benefit can be identified as deriving from the development of an identifiable intangible asset and the expenses can be reliably measured. Otherwise, costs are recognised on an ongoing basis. Development costs recognised in the balance sheet are amortised on a straight-line basis over their useful economic life. Research costs are recognised on an ongoing basis.
The cost of software and expenses relating to the implementation and adaptation of the Group’s logistics and management systems are recognised in the balance sheet and amortised on a straight-line basis over their useful economic life.
Property, plant and equipment
Land and facilities under construction are not depreciated. Other property, plant and equipment is recognised in the balance sheet and depreciated on a straight-line basis to residual value over its expected useful economic life. In the event of changes to the depreciation method, the impact is distributed over the remaining depreciation period. Maintenance of operating assets is recognised under operating costs on an ongoing basis. Upgrades and improvements are added to the cost of the operating asset and depreciated in line with the asset. The distinction between maintenance and upgrades/improvements is determined in relation to the condition of the asset on the original acquisition date.
Leased operating assets are recognised in the balance sheet as property, plant and equipment if the lease is deemed to be financial. Operating leases are recognised as an expense on an ongoing basis.
Other long-term share investments
The cost method is used for investments in other shares, etc. Dividends are generally recognised as financial income when the dividend is approved. Dividends that materially exceed the share of retained earnings after the purchase are recognised as a cost reduction.
Impairment of non-current assets
If there is an indication that the book value of a non-current asset is higher than fair value, an impairment test is carried out. The test is performed for the lowest level of non-current assets at which independent cash flows can be identified. If the carrying amount is higher than both the sales value and value in use (present value in event of continued use/ownership), the asset is written down to the higher of sales value and value in use.
Previous impairments, with the exception of the impairment of goodwill, are reversed if the conditions causing the impairment no longer exist.
Inventory is valued at the lower of acquisition cost (following the FIFO principle) and fair value. Replacement cost is used as an approximation of fair value for raw materials and merchandise. For finished goods and goods in production, acquisition cost comprises expenses for product design, consumption of materials, direct wages, and other direct and indirect production costs (based on normal capacity). Fair value is the estimated price less necessary expenses for completion and sale. Only variable expenses are deemed necessary to sell finished goods, but fixed production costs are also included as necessary for goods that are unfinished.
Trade receivables are recognised in the balance sheet after the deduction of provisions for bad debts. Provisions for bad debts are calculated by assessing each individual receivable. Material financial problems at the customer, the likelihood that the customer will become insolvent or undergo financial restructuring, or delay or default on payments, are deemed to be indicators that a trade receivable ought to be written down.
Other receivables, both current and non-current, are recognised at the lower of nominal value and fair value. Fair value is the present value of expected future payments. However, discounting is not applied when its effect is immaterial for accounting purposes. Provisions for bad debts are estimated in the same way as for trade receivables.
Receivables and payables in foreign currencies are valued at the exchange rate on the reporting date. Realised currency gains and losses relating to the flow of goods are recognised under sales revenue and cost of goods sold. Other currency effects are classified under financial items.
Forward currency contracts and interest swaps
The company and Group use forward currency contracts to hedge part of assumed future receipts and payments in foreign currencies relating to the sale and purchase of goods. Forward currency contracts are treated as cash flow hedging until an invoice has been received and no change in the value of the hedging instrument is recognised. Once an invoice for the hedged item has been received, its value is secured by recognising it at the hedged exchange rate. Realised gains and losses relating to the flow of goods are recognised under sales revenue and cost of goods sold, along with other currency gains and losses relating to the production cycle.
Liabilities, with the exception of certain provisions, are recognised in the balance sheet at their nominal amount.
The company and the Group operate several different pension schemes. The pensions schemes are financed through payments to an insurance company, with the exception of the AFP scheme. The company has AFP and defined benefit plans, while the Group also has defined contribution plans.
Defined contribution plans
In the case of defined contribution plans, a contribution is paid to an insurance company. There are no further payment obligations once the contributions have been paid. The contributions are recognised as payroll expenses. Any prepaid contributions are recognised as an asset (pension assets) to the extent that the contribution can be refunded or reduce future payments.
AFP is an unfunded defined benefit multi-entity pension scheme. Such a scheme is really a defined benefit plan, but for accounting purposes is treated as a defined contribution plan because the scheme’s administrator does not provide enough information to calculate the liability in a reliable manner.
Defined benefit plans
A defined benefit plan is a pension plan that is not a defined contribution plan. A defined benefit plan is typically a pension plan that defines the benefit an employee will receive on retirement. The benefit is normally dependent on several factors, such as age, years of service with the company and salary. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation on the reporting date less the fair value of pension assets (amount paid to an insurance company), adjusted for unrecognised estimate deviations and unrecognised costs relating to previous periods’ pension accruals. The pension liability is calculated annually by an independent actuary using a linear accrual method.
Changes to the pension plan are amortised over the expected remaining vesting period. The same applies to estimate differences due to new information or changes in the actuarial assumptions if they exceed 10 per cent of the larger of the pension liabilities and pension funds (corridor).
Statement of cash flows
The statement of cash flows has been prepared in accordance with the indirect method. Cash and cash equivalents include cash, bank deposits and credit balances in the group account scheme.
Changes in accounting policies in the financial statements
The parent company is the owner of the group account scheme. In previous years, group account credit and debit balances were presented as bank deposits and overdrafts. They have been reclassified and presented on separate lines in the balance sheet as ‘Group receivable, group account’ and ‘Group liability, group account’. The comparative figures have been revised.
Other changes in comparative figures
In previous years, some of the Group’s subsidiaries did not define the cost of goods sold and operating expenses in the same way as the rest of the Group. These definitions have now been reclassified so that they harmonise with the policies applied by the rest of the Group. For 2021, the effect of the reclassification represents an increase of NOK 507,000 in the cost of goods sold and a reduction in other operating expenses of NOK 507,000 in the consolidated financial statements.