Earnings per share
Basic earnings per share are calculated by dividing the profit or loss
attributable to the equity holders of the parent for the period by
the weighted average number of shares outstanding during the
period. The average number of treasury shares has been deducted
from the number of shares outstanding.
For the calculation of the diluted earnings per share the diluting
impact of all potentially diluting share conversions have been taken
into account. The Group has share options and previously also
convertible bonds as diluting instruments. The dilution of share
options has been computed using the treasury stock method. In
dilution, the denominator includes the shares obtained through the
assumed conversion of the options, and the repurchase of treasury
shares at the average market price during the period with the funds
generated by the conversion. The assumed conversion of options
is not taken into account for the calculation of earnings per share
if the effective share subscription price defined for the options
exceeds the average market price for the period. The convertible
bonds are assumed to have been traded for company shares after
the issue.
Property, plant and equipment
The values of property, plant and equipment acquired by the
Group companies are based on their costs. The assets of acquired
subsidiaries are measured at fair value on the date of acquisition.
Depreciation is calculated on a straight-line basis from the original
acquisition cost, based on the expected useful life. Depreciation
includes any impairment losses.
In the statement of financial position, property, plant and
equipment are stated at cost less accumulated depreciation
and impairment losses. The borrowing costs of items included
in property, plant and equipment, and requiring a substantial
construction period, are capitalised for the period needed to
produce the investment for the intended purpose. Other borrowing
costs are recognised as expenses in the period they incurred.
Depreciation is based on the following expected useful lives:
Buildings 20–40 years
Machinery and equipment 4–20 years
Other tangible assets 10–40 years
Land is not depreciated.
The expected useful lives are reviewed at each reporting
date, and if they differ materially from previous estimates, the
depreciation schedules are changed accordingly.
Regular maintenance and repair costs are recognised
as expenses for period. Expenses incurred from significant
modernisation or improvement projects are recorded in the
statement of financial position if the company gains future
economic benefits in excess of the originally assessed standard of
performance of the existing asset. Modernisation and improvement
projects are depreciated on a straight-line basis over their useful
lives. Gains and losses from the divestment and disposal of
property, plant and equipment are determined as the difference
of the net disposal proceeds and the carrying amounts. Sales gains
and losses are included in operating profit in the income statement.
Goodwill and other intangible assets
Goodwill arising from business combinations is recognized as the
amount by which the aggregate of the transferred consideration,
any non-controlling interest in the acquire and any previously
held interest exceeds the fair value of the net assets acquired.
Goodwill is not amortized but is tested for impairment annually and
whenever an indication of possible impairment exists.
Other intangible assets include customer relationships,
capitalised development costs, patents, copyrights, licences and
software. Intangible rights acquired in business combinations are
measured at fair value and amortised on a straight-line basis over
their useful lives. Other intangible assets are measured at cost
and amortised on a straight-line basis over their useful lives. An
intangible asset is only recorded in the statement of financial
position if it is probable that the expected future economic
benefits that are attributable to the asset will flow to the company
and cost can be measured reliably. Subsequent expenses related
to the assets are only recorded in the statement of financial
position if the company gains future economic benefits in excess
of the originally assessed standard of performance of the existing
asset; otherwise, costs are recognised as expenses at the time of
occurrence.
In the statement of financial position, intangible assets are
recorded at cost less accumulated amortisation and impairment
losses. The borrowing costs of items included in other intangible
assets, and requiring a substantial construction period, are
capitalised for the period needed to produce the investment for
the intended purpose. Other borrowing costs are recognised as
expenses in the period they incurred. The amortisation schedule for
intangible assets is 3–10 years.
Impairment
At reporting date the Group shall assess whether there is any
indication that an asset may be impaired. If any such indication
exists, the recoverable amount of the asset in question is
estimated. Goodwill and intangible assets not yet available for use
are tested for impairment at least annually. To assess impairment,
the Group’s assets are allocated to cash-generating units on the
smallest group that is largely independent of other units and the
cash flows of which can be separated.
The recoverable amount is the higher of fair value of the asset
less costs to sell and a value in use. As a rule, value in use is based
on the discounted future cash flows that the corresponding asset
or the cash-generating unit can derive. The impairment recognised
in the income statement is the amount by which the carrying
amount of the asset exceeds the corresponding recoverable
amount, and in the statement of financial position it is allocated
first to reduce the carrying amount of any goodwill of the unit
and then pro rata against the other assets. An impairment loss
recognised in prior periods will be reversed if the estimates used
to determine the recoverable amount change. However, a reversal
of impairment loss shall not exceed the carrying amount that
would have been determined in the statement of financial position
without the recognised impairment loss in prior periods. Impairment
loss on goodwill is not reversed under any circumstances.
Inventories
Inventories are measured at the lower of cost or the net realisable
value. Cost is primarily determined in accordance with standard
cost accounting. The cost of finished goods and work in progress
includes raw material purchase costs, direct manufacturing wages,
other direct manufacturing costs, and a share of production
overheads, borrowing costs excluded. Net realisable value is the
estimated sales price in ordinary activities less the costs associated
with the completion of the product and the estimated necessary
costs incurred to make the sale of the product. Allowance is
recorded in obsolete items.
Trade receivables
Trade receivables in the statement of financial position are carried
at the original invoice value (and those in foreign currencies are
measured at the closing rate of the European Central Bank) less a
loss allowance for expected credit losses and credits for returned
goods.
Dividend
The dividend proposed by the Board of Directors at the Annual
General Meeting has not been recognised in the financial
statements. Dividends are only accounted for on the basis of the
decision of the Annual General Meeting.
Equity
The acquisition cost of treasury shares repurchased by the Group is
recognised as a deduction in equity. The consideration received for
the treasury shares when sold, net of transaction costs and tax, is
included in equity.
Provisions
A provision is entered into the statement of financial position if
the Group has a present legal or constructive obligation as a result
of a past event, and it is probable that an outflow of economic
benefits will be required to settle the obligation and the amount
of the obligation can be reliably estimated. Provisions may be
related to the reorganisation of activities, unprofitable agreements,
environmental obligations, trials and tax risks. Warranty provisions
include the cost of product replacement during the warranty
period. Provisions constitute best estimates at the statement of
financial position date and are based on past experience of the
level of warranty expenses.
Contingent liabilities and contingent assets
A contingent liability is a possible obligation that arises from past
events and whose existence will be confirmed only by realization
of an uncertain future event not totally controllable by the Group.
A contingent liability is also defined as a present obligation that
probably will not require the settlement of the obligation, or cannot
be measured reliably. A contingent liability is disclosed in the notes
to the consolidated financial statements.
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NOKIAN TYRES PLC FINANCIAL REVIEW 2020 REPORT BY THE BOARD OF DIRECTORS GOVERNANCEFINANCIAL STATEMENTS