FINANCIAL STATEMENTS 2010 - Finnlines

transaction is no longer expected to occur, the cumulative gain or
loss that was deferred in shareholders' equity is recognised im-
mediately in the profit and loss account.
Even though some hedging relationships may fulfil the require-
ments set by the Group's risk management on effective hedging,
hedge accounting in accordance with IAS 39 is not applied to
them. Such instruments include any derivatives hedging against
foreign currency risk related to operations, and interest rate
derivatives hedging against interest rate risk of debt portfolio,
whose fair value changes are recognised in financial income and
expenses. In the statement of financial position these items are
shown, according to their nature, under either short- or long-term
receivables or payables.
LEASES
The Group as a lessee
Leases with the Group as leaseholder, where a significant pro-
portion of the risks and benefits associated with ownership re-
main with the lessor, are classified as operating leases, and the
leases paid in relation to them are recognised as expenses in the
profit and loss account on a straight-line basis over the period of
the lease.
Leases in which the company has assumed a significant pro-
portion of the risks and benefits associated with ownership are
classified as finance leases. Finance leases are recognised on
the statement of financial position as assets and liabilities on the
start date of the lease period at a value equivalent to the lower
of the fair value of the leased goods or the present value of the
minimum lease, which are determined on the date of contract.
Minimum leases are divided into financial expenses and loan re-
payments. Financial expenses are recognised as expenses in the
profit and loss account and allocated over the reporting periods
within the lease contract period to the extent that the outstand-
ing loan in each period has an equal interest rate. Depreciation of
the leased assets subject to depreciation is calculated accord-
ing to the same principles as depreciation of owned assets. If
there is relative certainty that the Group will receive ownership of
an asset before the end of its lease period, the asset’s estimated
useful life is the same as its economic life. Otherwise, the asset
is depreciated within the shorter of the lease period or the useful
life.
The Group as a lessor
Leases where the Group retains substantially all the risks and
benefits of ownership of the asset are classified as operating
leases. Leases where the group acts as a lessee of vessels un-
der operating leases but where the Group generates income
through subleasing these, are also classified as operating leases.
Lease income from operating leases is recognised in income on
a straight-line basis over the lease term, and in case of vessels,
normally adjusted with the non-usable days for the lessee.
INVENTORIES
Inventories include the fuel, lubricant, bulk and food supplies of
16 FINNLINES PLC Financial Statements 2010 (figures in EUR thousand, if not stated otherwise)
the Group's vessels, as well as goods for sale on the vessels. In-
ventories are valued at the lower of their acquisition cost or their
net realisation value. Acquisition costs are determined using the
FIFO (first in, first out) method. The net realisation value is the es-
timated sale price in ordinary business transactions, from which
the cost of sale has been deducted.
EQUITY
Instruments issued by the Group, which do not contain contrac-
tual obligation to transfer cash or financial assets or to exchange
financial assets or financial liabilities with other entities under po-
tentially unfavourable terms, and which evidence a residual inter-
est in the assets of the Group after deducting all of its liabilities,
are classified as equity. The share capital consists of ordinary
shares.
Costs arising from issues or acquisitions of equity instru-
ments are accounted for as a deduction from equity. If the Group
reacquires its own equity instruments, those instruments are
deducted from equity.
INCOME TAXES
The tax expenses recognised on the profit and loss account con-
sist of income tax payable on taxable profit and of deferred taxes.
Income tax on taxable profit for the reporting period is calculat-
ed using the valid tax rate of each country. Taxes are adjusted by
possible taxes relating to previous periods.
Deferred tax liabilities are calculated using the statement of
financial position liability method, by calculating the tax from all
temporary differences between book value and taxable value.
Deferred taxes are calculated using the tax rates valid on the end
of the reporting period.
Deferred tax assets are recognised in the accounts up to the
amount at which it is likely that taxable income will be generat-
ed in the future, against which the tax receivables can be used.
No deferred taxes are recognised for subsidiaries' undistributed
earnings.
EMPLOYEE BENEFITS
Pension liabilities
The Group has various pension plans in accordance with the lo-
cal regulations of each country in which it operates. Group's pen-
sion plans are classified as defined contribution plans and de-
fined benefit plans.
Employee pension plans are organised through external pen-
sion insurance companies. The Finnish TyEL pension insurance
organised through external pension insurance companies is
treated as defined contribution plans as of 1 January 2006.
In defined contribution plans, the company makes fixed pay-
ments into the plan. The company has no legal or actual obliga-
tion to make additional payments if the pension insurance com-
pany is unable to pay out the benefits earned by employees in the
current period or in previous periods. Payments made into de-
fined contribution plans are recognised in the profit and loss ac-
count in the reporting period to which the payment applies.