ANNUAL REPORT 2011 - DONG Energy

notes
02 Critical accounting estimates and judgements
valuation of receivables
Trade receivables etc. total DKK 16.4 billion (2010: DKK 17.2
billion). Write-downs are made for bad and doubtful debts
on the basis of due date and historical experience. These
judgements are subject to uncertainties, as they are based
on assessments of the counterparty’s ability and willingness
to pay. The risk of bad debts remains higher than normal due
to the international fi nancial crisis, and this has been taken
into account in connection with the valuation of the Group’s
receivables.
receivables from the disposal of equity
investments to non-controlling interests
DONG Energy’s receivables from the disposal of equity investments
to non-controlling interests total DKK 1.4 billion (2010:
DKK 1.8 billion). The contracts entered into in connection with
the disposal of equity investments to non-controlling interests
may contain provisions that are contingent on specifi c future
conditions. The determination of gains and the recognition of
receivables are therefore subject to uncertainty. The gains and
receivables recognised are based on management’s estimates
of the most likely outcomes of future events.
unlisted fi nancial contracts
DONG Energy has concluded fi nancial contracts based on,
among other things, oil, gas, electricity and coal that are unlisted
and are measured at fair value, including a single longterm
contract that runs until 2020. Fair values are determined
based on fi xed valuation models by reference to market data
and the outlook concerning long-term prices and exchange
rates, etc., each of which is subject to uncertainty. Reference
is made to the information about the fair value hierarchy in
note 33.
Decommissioning obligations
DONG Energy has signifi cant decommissioning obligations,
DKK 9.4 billion (2010: DKK 7.1 billion). The estimates of the
Group’s decommissioning obligations are updated on a quarterly
basis.
Decommissioning obligations are affected by changes in expected
decommissioning and restoration costs, the future date
on which the costs will be incurred, and offi cial requirements.
Expected decommissioning and restoration costs are based
either on examinations carried out by external experts or internal
estimates. Estimated costs include a risk premium, based
on experience data. The discount rate applied refl ects the general
risk-free interest rate level in the given market
Onerous contracts
In the course of the Group’s operations, a number of commercial
contracts have been entered into with fi xed terms of
70 74 COnsOliDatED finanCial statEmEnts – DONG ENERGY GROUP ANNUAL ANNUAL REPORT REPORT 2011
2011
contract that may result in the contracts becoming onerous
depending on market developments, etc., and the liabilities
incurred by the Group as a result of these contracts may also
be subject to uncertainty. The judgements concerning these
complex contracts and their future effects are subject to signifi
cant uncertainties.
Other provisions and contingent items
Management continuously evaluates provisions, DKK 3.1 billion
(2010: DKK 2.7 billion), contingent assets and contingent
liabilities as well as the probable outcome of pending and potential
litigation, etc. The outcome depends on future factors,
which, by their nature, are uncertain. Reference is made to the
description of contingent assets and contingent liabilities in
note 37.
The factors taken into account when exercising a judgement
about a potential liability are the nature of the litigation, claim
or statement. Other factors taken into account are the development
of the case, the judgements and recommendations
of legal or other advisers, experience from similar cases, and
management’s decision on how the Group will react to the litigation,
claim or statement.
The Group is a party to various litigation proceedings. The
decision as to whether a provision should be made in such
disputes requires conclusions to be drawn concerning various
factual and legal matters outside the Group’s control. If the
judgements do not refl ect the subsequent development or the
fi nal outcome of the dispute, this will have a signifi cant impact
on the Group’s future profi ts (losses), balance sheet and cash
fl ows.
Business combinations
No business combinations were recognised in the years 2010
and 2011.
On acquisitions, the acquiree’s assets, liabilities and contingent
liabilities are recognised at fair value at the acquisition
date. For a signifi cant part of the assets acquired and liabilities
assumed, no effective markets exist on the basis of which the
fair value can be determined. This applies to intangible assets,
in particular. In such cases, fair value is determined using
models that are based on calculations of present values of
future cash fl ows. Management therefore makes estimates in
connection with the determination of the fair value of assets,
liabilities and contingent liabilities acquired. Depending on the
nature of the items, these estimates, and therefore also the fair
values, may be subject to uncertainty and may subsequently
be adjusted.