ANNUAL REPORT 2011 - DONG Energy

notes
40 Description of accounting policies
Other inventories are measured at cost using the first-in, firstout
(FIFO) principle or net realisable value. Inventories are
written down to net realisable value whenever the cost exceeds
the net realisable value.
The net realisable value of inventories is determined as the
expected selling price less any costs of completion and costs
incurred to execute the sale, and is determined taking into
account marketability, obsolescence and development of expected
selling price.
receivables
Receivables are measured at amortised cost. A write-down
for bad and doubtful debts is made if there is any objective
evidence of impairment of a receivable or a portfolio of
receivables.
Receivables for which objective evidence of impairment is not
available on an individual basis are assessed for impairment on
a portfolio basis. Portfolios are primarily based on the debtor’s
registered office and credit rating in conformity with the
Group’s credit risk management policy. The objective evidence
applied to portfolios is determined on the basis of historical
loss experience.
If there is any objective evidence of impairment of a portfolio,
an impairment test is carried out where expected future cash
flows are estimated on the basis of historical loss experience
adjusted for current market conditions and individual factors
related to the individual portfolio.
The impairment loss is calculated as the difference between
the carrying amount and the present value of estimated future
cash flows, including the realisable value of any collateral received.
The discount rate used is the effective interest rate for
the individual receivable or portfolio.
Recognition of interest income on impaired receivables is calculated
on the written-down value at the effective interest rate
for the individual receivable or portfolio.
Construction contracts
Construction contracts comprise the construction of assets
involving a high degree of customisation in terms of design,
and where a binding contract has been entered into prior to
start-up of the work that will trigger a penalty or compensation
in the event of subsequent cancellation. Construction
contracts also include services such as establishment of grids
and networks, etc. Construction contracts are measured at the
selling price of the work performed less progress billings. The
selling price of construction contracts is measured on the basis
of the stage of completion at the balance sheet date and total
138 COnsOliDatED finanCial statEmEnts – DONG ENERGY ANNUAL REPORT 2011
expected income on each contract. The stage of completion
is determined on the basis of an assessment of the work performed,
normally determined as the proportion that contract
costs incurred for work performed to date bear to the estimated
total contract costs.
When it is probable that total contract costs on a construction
contract will exceed total contract revenue, the expected loss
on the construction contract is recognised immediately as an
expense and a provision.
When the outcome of a construction contract cannot be estimated
reliably, the selling price is recognised only to the extent
of costs incurred that it is probable will be recoverable.
Where the selling price of work performed on construction contracts
exceeds progress billings and expected losses, the contracts
are recognised as receivables. Where progress billings
and expected losses exceed the selling price of construction
contracts, the contracts are recognised as liabilities.
Prepayments from customers are recognised as liabilities.
Costs related to sales work and the winning of contracts are
recognised in profit for the year as incurred.
short-term and long-term securities
Securities, comprising bonds that are monitored, measured
and reported at fair value on a continuing basis in conformity
with the Group’s investment policy, are recognised at the trade
date as current assets and measured at fair value, equivalent
to market price for listed securities and estimated fair value
determined on the basis of current market data and recognised
valuation methods for unlisted securities.
Changes in the fair value of securities are recognised in profit
for the year as finance income and costs.
Sold securities where a repurchase agreement (repo transactions)
has been made at the time of sale are recognised in the
balance sheet at the settlement date as if the securities were
still held. The amount received is recognised as a liability, and
the difference between the selling price and the purchase price
is recognised in profit for the year over the term as interest. The
return on the securities is recognised in profit for the year.
income tax and deferred tax
Current tax payable and receivable is recognised in the balance
sheet as tax computed on the taxable income for the year, adjusted
for taxes paid on account.