Kesko's year 2007

Year 2007
Divisions The Group
Financial
statements
Further information
Leases in which assets are leased out by the Group, and substantially
all the risks and rewards incident to ownership are transferred to the lessee,
are classified as finance leases. Assets leased under such contracts
are recognised as receivables in the balance sheet and are stated at
present value. The financial income from finance leases is determined so
as to achieve a constant periodic rate of return on the remaining net
investment for the lease term.
Leases in which risks and rewards incident to ownership are not
transferred to the lessee are classified as operating leases. Lease payments
related to them are recognised in the income statement on a
straight-line basis over the lease term.
In sale and leaseback transactions the sale price and the future lease
payments are usually interdependent. If a sale and leaseback transaction
results in a finance lease, any excess of sales proceeds over the carrying
amount is not immediately recognised as income. Instead it is deferred
and amortised over the lease term. If a sale and leaseback transaction
results in an operating lease and the transaction is established at fair
value, any profit or loss is recognised immediately.
If the sale price is below fair value, any profit or loss is recognised
immediately unless the loss is compensated by future lease payments at
below market price, in which case the loss is deferred and amortised over
the period for which the asset is expected to be used. If the sale price is
above fair value, the excess over fair value is deferred and amortised over
the period for which the asset is expected to be used. If the fair value at
the time of a sale and leaseback transaction is less than the carrying
amount of the asset, a loss equal to the amount of the difference between
the carrying amount and fair value is recognised immediately.
Inventories
Inventories are measured at the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary course
of business less the estimated costs necessary to make the sale. The cost
is primarily assigned by using the weighted average cost formula. The
cost of certain classifications of inventory is assigned by using the FIFO
formula. The cost of finished products comprises all costs of purchase
including freight. The cost of self-constructed goods comprise all costs of
conversion including direct costs and allocations of variable and fixed
production overheads.
Trade receivables
Trade receivables are recognised at the original invoice amount. Impairment
is recognised when there is objective evidence of impairment loss.
The Group has established a uniform basis for the determination of
impairment of trade receivables based on the time receivables have been
outstanding. In addition, impairment is recognised if there is other evidence
of a debtor's insolvency, bankruptcy or liquidation. Losses on loans
and advances are recognised as an expense in the income statement.
Assets held for sale and discontinued operations
Assets (or a disposal group) and liabilities relating to discontinued operations
are classified as held for sale, if their carrying amount will be recovered
principally through the disposal of the assets rather than through
continuing use. For this to be the case, the sale must be highly probable,
the asset (or disposal group) must be available for immediate sale in its
present condition subject only to terms that are usual and customary, the
management must be committed to selling and the sale should be
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expected to qualify for recognition as a completed sale within one year
from the date of classification.
Non-current assets held for sale (or assets included in the disposal
group) and assets and liabilities linked to a discontinuing operation are
measured at the lower of the carrying amount and fair value net of estimated
costs to sell. After an asset has been classified as held for sale, or
if it is included in the disposal group, it is not depreciated. If the classification
criterion is not met, the classification is reversed and the asset is
measured at the lower of its balance sheet value prior to the classification
less depreciation and impairment, and recoverable amount. A noncurrent
asset held for sale and assets included in the disposal group classified
as held for sale are disclosed separately in the balance sheet. Liabilities
included in the disposal group of assets held for sale are also
disclosed separately in the balance sheet. The profit from discontinued
operations is disclosed as a separate line item in the income statement.
The Group has classified certain real estate properties removed from
business use as assets held for sale.
Provisions
A provision is recognised when the Group has a present legal or constructive
obligation as a result of a past event, and it is probable that an outflow
of resources embodying economic benefits will be required to settle
the obligation, and that a reliable estimate can be made of the amount of
the obligation. Provision amounts are reviewed at each balance sheet
date and adjusted to reflect the current best estimate. Changes in provisions
are recorded in the income statement in the same item in which the
provision was originally recognised. The most significant part of the
Group's provisions relates to warranties given to products sold by the
Group, and to onerous leases.
A warranty provision is recognised when a product fulfilling the
terms is sold. The provision amount is based on historical experience
about the level of warranty expenses. Leases become onerous if the
leased premises become vacant, or if they are subleased at a rate lower
than the original. A provision is recognised for an estimated loss from
vacant lease premises over the remaining lease term, and for losses from
subleased premises.
Pension plans
The Group operates several pension plans classified either as defined
contribution plans or defined benefit plans. The contributions payable
under defined contribution plans are recognised as an expense in the
income statement of the period in which they incur.
In defined benefit plans, after the Group has paid the amount for the
period, obligations or assets may result. The pension obligation represents
the present value of future cash flows from payable benefits. The
present value of pension obligations has been calculated using the Projected
Unit Credit Method. The assets corresponding to the pension obligation
of the retirement benefit plan are carried at fair values at the balance
sheet date. Actuarial gains and losses are recognised in the income
statement for the average remaining service lives of the employees participating
in the plan to the extent that they exceed 10 percent of the
higher of the present value of the defined benefit plans and the fair value
of assets belonging to the plan.
Relating to the arrangements taken care of by the Kesko Pension
Fund, the funded portion and the disability portion under the Finnish
Employees' Pensions Act are treated as defined benefit plans. In addition,