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ANNUAL REPORT 2011 - DONG Energy

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CO 2 emissions allowances<br />

Allocated and purchased CO 2 emissions allowances, including<br />

CO 2 credits, that are accounted for as rights are measured ini-<br />

tially at cost. If a grant is received in connection with an allocation,<br />

the cost constitutes the actual consideration paid for the<br />

allowances, i.e. nil if the allowances are allocated free of charge.<br />

CO2 emissions allowances are not amortised, as their residual<br />

value equals their cost.<br />

rights<br />

Rights comprise gas purchase rights, acquired customer rights<br />

and IT software licences, etc., and are measured at cost less accumulated<br />

amortisation and impairment losses.<br />

Gas purchase rights are amortised using the unit-of-production<br />

method, taking into account the expected earnings profile, so<br />

that the amortisation pattern reflects the expected earnings<br />

patterns. Other rights are amortised on a straight-line basis<br />

over their expected economic lives, which are determined on<br />

the basis of management’s experience of the specific business<br />

areas, and the assets to which the rights relate. Capitalised<br />

rights are estimated to have a life of 5 - 20 years.<br />

Development projects<br />

Development projects that are clearly defined and identifiable,<br />

and for which technical feasibility, adequate resources and a<br />

future application in the enterprise can be demonstrated, and<br />

which the enterprise intends to manufacture or use, are recognised<br />

within intangible assets if the cost can be determined<br />

reliably and if there is reasonable certainty that the future<br />

earnings will cover all costs. Other development costs are recognised<br />

in profit for the year as incurred.<br />

Capitalised development costs are measured at cost less accumulated<br />

amortisation and impairment losses. Cost comprises<br />

wages and salaries and other costs attributable to the Group’s<br />

development activities. Borrowing costs relating to specific and<br />

general borrowing directly attributable to the development of<br />

development projects are recognised in cost.<br />

On completion of the development work, development projects<br />

are amortised on a straight-line basis over the estimated economic<br />

life from the date the asset is available for use. The amortisation<br />

period is usually five years. The basis of amortisation<br />

is reduced by any impairment losses.<br />

investments in associates<br />

Investments in associates are measured in the consolidated<br />

financial statements using the equity method whereby the<br />

investments are measured in the balance sheet at the proportionate<br />

share of the associates’ net assets determined in<br />

accordance with the Group’s accounting policies, increased by<br />

or net of the proportionate share of unrealised intragroup gains<br />

and losses and increased by any excess of cost on acquisition,<br />

including goodwill.<br />

Associates with negative net assets are measured at nil. If the<br />

Group has a legal or constructive obligation to cover the associate’s<br />

deficit, the obligation is recognised as a liability.<br />

Receivables from associates are measured at amortised cost.<br />

Write-downs are made for bad debts.<br />

On acquisition of investments in associates, the purchase<br />

method is applied, see the description under business<br />

combinations.<br />

Other equity investments<br />

Other equity investments comprise unlisted securities. Other<br />

equity investments are recognised initially in the balance<br />

sheet at cost, equivalent to fair value plus transaction costs.<br />

Subsequent to initial recognition, other equity investments are<br />

measured at cost less any impairment losses, as it is deemed<br />

impracticable to reliably determine their fair value.<br />

Other equity investments are recognised as financial assets<br />

available for sale. Available-for-sale financial assets are those<br />

non-derivative financial assets that are designated as available<br />

for sale or are not classified as loans and receivables, financial<br />

assets at fair value through profit for the year or held-to-maturity<br />

financial assets.<br />

Other non-current financial assets<br />

Other non-current financial assets comprise receivables that<br />

are recognised initially in the balance sheet at cost, equivalent<br />

to fair value, and are subsequently measured at amortised cost.<br />

inventories<br />

Inventories consist of oil and gas in storage facilities, as well<br />

as raw materials, consumables, fuel inventories, CO2 emissions<br />

allowances and green certificates.<br />

In the case of oil, cost is determined as the average production<br />

cost. In the case of gas, cost is determined as a weighted average<br />

of the previous month’s buying prices, including transportation<br />

costs.<br />

Allocated and purchased CO 2 emissions allowances that form<br />

part of the Group’s trading activities with a view to generating<br />

gains from short-term price fluctuations are measured at fair<br />

value with value adjustments recognised in profit for the year.<br />

<strong>DONG</strong> ENERGY <strong>ANNUAL</strong> <strong>REPORT</strong> <strong>2011</strong> – COnsOliDatED finanCial statEmEnts<br />

137<br />

notes

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