ANNUAL REPORT 2008 - Gorenje Group

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(ii) Derivative financial instruments
The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk
exposures. Embedded derivatives are separated from the host contract and accounted for separately
if the economic characteristics and risks of the host contract and the embedded derivative
are not closely related, a separate instrument with the same terms as the embedded derivative
would meet the definition of a derivative, and the combined instrument is not measured at fair value
through profit or loss.
Derivatives are recognised initially at fair value; attributable transaction costs are recognised in
profit or loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value,
and changes therein are accounted for as described below.
Cash flow hedges
Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are
recognised directly in equity to the extent that the hedge is effective.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated
or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or
loss previously recognised in equity remains there until the forecast transaction occurs. When the
hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying
amount of the asset when it is recognised. In other cases the amount recognised in equity is transferred
to profit or loss in the same period that the hedged item affects profit or loss.
Economic hedges
Hedge accounting is not applied to derivative instruments that economically hedge monetary assets
and liabilities denominated in foreign currencies. Changes in the fair value of such derivatives
are recognised in profit or loss as part of foreign currency gains and losses.
(iii) Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary
shares and share options are recognised as a deduction from equity, net of any tax effects.
Repurchase of share capital (treasury shares)
When share capital recognised as equity is repurchased, the amount of the consideration paid,
which includes directly attributable costs, is net of any tax effects, and is recognised as a deduction
from equity. Repurchased shares are classified as treasury shares and are presented as a deduction
from total equity. When treasury shares are sold or reissued subsequently, the amount received is
recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred
to retained earnings or reserves.
Dividends are recognised as a liability in the period in which they are declared by the shareholders’
meeting.
(d) Property, plant and equipment
(i) Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and
accumulated impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of
self-constructed assets includes the cost of materials and direct labour, any other costs directly at-