Kesko's year 2007

86 Kesko's year 2007
ceases. When determining the existence of control, the potential voting
rights that are currently exercisable have been taken into account. The
main subsidiaries are listed in Note 50.
Internal shareholdings are eliminated by using the acquisition cost
method. The cost of acquisition is determined on the basis of the fair
value of the acquired assets as on the date of acquisition, the issued
equity instruments and liabilities resulting from or assumed on the date
of the exchange transaction, plus the direct expenses relating to the
acquisition. The identifiable assets, liabilities and contingent liabilities
of the acquiree are measured at the fair value on the date of acquisition,
gross of minority interest.
All intra-group transactions, receivables and payables, unrealised
gains and internal distribution of profits are eliminated when preparing
the consolidated financial statements. Unrealised losses are not eliminated,
if the loss is due to the impairment of an asset. Minority interests
in the net profit are disclosed in the income statement and the amount of
equity attributable to minority interest is disclosed separately in the
Group's equity in the balance sheet.
Associates
Associates are enterprises in which the Group owns 20–50% of the voting
rights, or otherwise has significant influence, but not control. Associates
are consolidated by using the equity method. A share of an associate's
net profit for the period corresponding to the Group’s ownership interest
is disclosed separately in the consolidated financial statements. The
Group's share of an associate's post-acquisition net profit is added to the
acquisition cost of the associate's shares in the consolidated balance
sheet. Conversely, the Group’s share of an associate's post acquisition net
losses is deducted from the acquisition cost of the shares. If the Group's
share of an associate's losses is in excess of the carrying amount, the
part in excess is not deducted unless the Group has undertaken to fulfil
the associate's obligations. Unrealised gains between the Group and
associates are eliminated in proportion to the Group's ownership interest.
Dividends received from associates are deducted from the Group's
profit and the cost of the shares. An investment in an associate includes
the goodwill generated by the acquisition. Goodwill is not amortised. The
main associates are listed in Note 50.
Joint ventures
Joint ventures are enterprises in which the Group and another party exercise
joint control by virtue of contractual arrangements. The Group's
interests in joint ventures are consolidated proportionally on a line-byline
basis. The consolidated financial statements disclose the Group's
share of a joint venture's assets, liabilities, income and expenses. At the
end of the accounting period, the Group has no joint ventures.
Mutual real estate companies
In compliance with IAS 31, mutual real estate companies are consolidated
as assets under joint control on a line-by-line basis in proportion to
ownership.
Foreign currency items
The consolidated financial statements are presented in euros, which is
both the functional currency of the Group’s parent company and the
reporting currency. On initial recognition, the figures relating to the
result and financial position of Group entities located outside the euro
zone are recorded in the functional currency of their operating
environment.
Monetary foreign currency transactions are recorded in euros by
applying the exchange rate at the date of the transaction. Foreign currency
receivables and liabilities are translated into euros using the closing
rate. Profits and losses from foreign currency transactions and from
receivables and liabilities are recognised in the income statement with
the exception of those loan exchange rate movements designated to provide
a hedge against foreign net investments and regarded as effective.
Foreign exchange gains and losses from operating activities are included
in the respective items above operating profit. Gains and losses from forward
exchange contracts and options used to hedge financial transactions,
and from foreign currency loans are included in financial income
and expenses.
The income statements of Group entities operating outside the euro
zone have been translated into euros at the average rate of the reporting
period, and the balance sheets at the closing rate. The translation difference
resulting from the use of different rates is recognised in equity. The
translation differences arising from the elimination of the acquisition
cost of subsidiaries outside the euro zone, and the hedging result of net
investments made in them, are recognised in equity. In connection with
the disposal of a subsidiary, currency translation differences are disclosed
in the income statement as part of the gains or losses on the
disposal.
As of 1 January 2004, the goodwill arising from the acquisition of foreign
units and the fair value adjustments of assets and liabilities made
upon their acquisition have been treated as assets and liabilities of these
foreign units and translated into euros at the closing rate. The goodwill
and fair value adjustments of acquisitions made prior to 1 January 2004
have been recorded in euros.
Financial assets
As of 1 January 2005, the Group has applied IAS 32 Financial Instruments:
Disclosure and Presentation, and IAS 39 Financial Instruments:
Recognition and Measurement, as well as IFRS 7 Financial Instruments:
Disclosures starting from 1 January 2007.
The Group classifies financial assets in the following categories: 1)
financial assets at fair value through profit or loss, 2) available-for-sale
financial assets, and 3) loans and receivables. The classification of financial
assets is determined on the basis of why they were originally
acquired. Purchases and sales of financial assets are recognised using
the ‘regular way’ method. Financial assets are classified as non-current
assets if they have a maturity date greater than twelve months after the
balance sheet date. If financial assets are going to be held for less than 12
months, they are classified as current assets. Financial assets at fair
value through profit or loss are classified as current assets. Financial
assets are derecognised when the contractual rights to the cash flow of
the financial asset expire or have been transferred to another party, and
when the risks and rewards of ownership flown from the Group.
At each reporting date, the Group assesses whether there is any indication
that a financial asset may be impaired. If any such indication
exists, the recoverable amount of the asset is estimated. The recoverable
amount is the fair value based on the market price or the present value of
cash flows. An impairment loss is recognised if the carrying amount of
an asset exceeds its recoverable amount. The impairment loss is disclosed
in the financial expenses of the income statement, net of interest
income.