ANNUAL REPORT 2011 - DONG Energy
ANNUAL REPORT 2011 - DONG Energy
ANNUAL REPORT 2011 - DONG Energy
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translation reserve<br />
The translation reserve comprises exchange differences arising<br />
on translation of the financial statements of foreign entities<br />
with a functional currency that is different from the Group’s<br />
presentation currency, foreign exchange adjustments relating<br />
to assets and liabilities that form a part of the Group’s net<br />
investment in such entities, and foreign exchange adjustments<br />
relating to hedging transactions that hedge the Group’s net<br />
investment in such entities, less the related tax. The foreign<br />
exchange adjustments are recognised in profit for the year on<br />
realisation or partial realisation of the net investment.<br />
share premium<br />
Share premium represents the excess of the amount subscribed<br />
for share capital over the nominal value of these shares<br />
in connection with capital increases. The share premium is<br />
available for distribution.<br />
Dividends<br />
Proposed dividends are recognised as a liability at the date<br />
of their adoption at the Annual General Meeting (declaration<br />
date). Up to the declaration date, proposed dividends are disclosed<br />
as a separate item in equity. Extraordinary dividends are<br />
recognised as a liability at the declaration date.<br />
Hybrid capital<br />
Hybrid capital comprises issued bonds that qualify for treatment<br />
in accordance with the rules on compound financial instruments<br />
due to the special characteristics of the loan. The principal<br />
amount, which constitutes a liability, is recognised at present<br />
value (nil), and equity has been increased by the difference<br />
between the net proceeds received and the present value of the<br />
discounted liability. Accordingly, any coupon payments are accounted<br />
for as dividends, which are recognised directly in equity<br />
at the time the payment obligation arises. This is because the<br />
coupon payments are discretionary and relate to the part of the<br />
hybrid capital that is recognised in equity. Coupon payments<br />
consequently do not have any effect on profit for the year.<br />
The part of the hybrid capital that is accounted for as a liability<br />
is measured at amortised cost. However, as the carrying amount<br />
of this component amounted to nil on initial recognition, and, as<br />
a result of the 1,000-year term of the hybrid capital, amortisation<br />
charges will only impact on profit for the year towards the<br />
end of the 1,000-year term of the hybrid capital. Coupon payments<br />
are recognised in the statement of cash flows in the same<br />
way as dividend payments within financing activities.<br />
provisions<br />
Provisions are recognised when, as a result of an event occurring<br />
before or at the balance sheet date, the Group has a legal<br />
or constructive obligation, the settlement of which is expected<br />
to result in an outflow from the company of resources embodying<br />
economic benefits.<br />
In measuring provisions, the costs required to settle the liability<br />
are discounted to net present value, if this has a significant<br />
effect on the measurement of the liability. A pre-tax discount<br />
rate is used that reflects the general interest rate level in the<br />
market. The change in present values for the financial year is<br />
recognised as finance costs.<br />
Provisions for decommissioning of production facilities and restoration<br />
are measured at the present value of the future liability<br />
in respect of decommissioning and restoration as estimated<br />
at the balance sheet date. The amount provided is determined<br />
on the basis of existing requirements and estimated expenses,<br />
which are discounted to present value. If specific risks are<br />
deemed to be attached to a provision, the estimated costs are<br />
recognised. A discount rate is used that reflects the general<br />
interest rate level in the market. These liabilities are recognised<br />
as they arise and are adjusted on a regular basis to reflect<br />
changes in requirements, price level, etc. The value of the provision<br />
is recognised within property, plant and equipment and<br />
depreciated together with the relevant assets. The increase in<br />
time of the present value of the provision is recognised in profit<br />
for the year as finance costs.<br />
A provision for onerous contracts is recognised when the<br />
expected benefits to be derived by the Group from a contract<br />
are lower than the unavoidable cost of meeting its obligations<br />
under the contract.<br />
If it is considered unlikely that an outflow of resources embodying<br />
economic benefits will be required to settle an obligation,<br />
or if the obligation cannot be measured reliably, the obligation<br />
is accounted for as a contingent liability that is not recognised<br />
in the balance sheet. Information about material contingent liabilities<br />
is disclosed in the notes.<br />
financial liabilities<br />
Financial liabilities comprise mortgage loans, bank loans, trade<br />
and other payables to public authorities, etc.<br />
Bond loans, mortgage loans and bank loans are recognised at<br />
inception at the proceeds received net of transaction costs incurred.<br />
In subsequent periods, the financial liabilities are measured<br />
at amortised cost using the effective interest rate method.<br />
Accordingly, the difference between the proceeds received<br />
and the nominal amount is recognised in profit for the year as<br />
finance costs over the term of the loan.<br />
For hybrid capital, reference is made to the specific details<br />
given under equity.<br />
<strong>DONG</strong> ENERGY <strong>ANNUAL</strong> <strong>REPORT</strong> <strong>2011</strong> – COnsOliDatED finanCial statEmEnts<br />
133<br />
notes
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