Page 20 - Kitron Annual Report 2011

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Notes to the consolidated financial statements
20
Kitron annual report 2011
Revenue recognition
Revenue from the sale of goods and services is rec-
ognised at fair value, net of VAT, returns, discounts
and rejects.
Sales of goods
Sales of goods are recognised in the profit and loss
account when a unit within the group has delivered its
products to the customer and the customer has ac-
cepted the product.
Sales of services
Sales of services embrace development assignments
and services related to industrialisation. Service deliv-
eries are partly project-based and partly hourly-based.
Sales of project-based services are recognised in the
period in which the services are rendered, based on
the degree of completion of the relevant project. The
degree of completion is determined by measuring the
services provided as a proportion of the total services
to be rendered. Hourly-based services are recognised
in the period when the service is rendered.
Interest income
Interest on bank deposits is recognised in the period
when it is earned.
Leasing
Leases where a significant portion of the risks associ-
ated with the fixed asset are retained by the lessor are
classified as operating leasing. Payments made under
operating leases are recognised in the profit and loss
statement on a straight-line basis over the period of
the lease.
The group leases certain property, plant and equip-
ment. Leases of property, plant and equipment where
the group has substantially all the risks and rewards
of ownership are classified as finance leases. Finance
leases are capitalised at the lease’s commencement
at the lower of the fair value of the leased property
and the present value of the minimum lease payments.
Each lease payment is allocated between the liability
and finance charges so as to achieve a constant rate
of the finance balance outstanding. The correspond-
ing rental obligations, net of finance charges, are
included in other long-term payables. The interest
element of the finance cost is charged to the income
statement over the lease period so as to produce a
constant periodic rate of interest on the remaining
balance of the liability for each period. The property,
plant and equipment acquired under finance leases
is depreciated over the shorter of the useful life of the
asset and the lease term.
Dividend payments
Possible dividend payments to the company’s share-
holders are recognised as a liability in the group’s
financial statements in the period when the dividend is
approved by the general meeting.
The company is exposed through its business to a
number of financial risks. Its corporate routines for risk
management focus on the unpredictability of the financial
markets, and endeavour to minimise potential negative ef-
fects arising from the company’s financial dispositions.
Market risk
Currency risk: The group is exposed to changes in
foreign exchange rates because a significant share
of the group’s goods and services are sold in such
currencies. At the same time raw material are bought
in foreign currency and the operating costs in foreign
group entities are in local currency. To reduce the cur-
rency risk the company’s standard contracts include
currency clauses which allow the company to adjust
the price when the actual exchange rate differs signifi-
cantly from the agreed base rate. The group has not
established other significant currency hedge arrange-
ments over and above its standard contracts with
customers. The most significant foreign currencies are
SEK, LTL, EURO and USD. The group has significant
investments in foreign operations who’s net assets are
exposed to foreign currency translation risk in SEK,
LTL, EUR, USD and RMB.
At 31 December, if the currency had weakened/
strengthened by 1 per cent against the US dollar with
all variables held constant, post –tax profit for the
year would have been NOK 0.2 million (2010: NOK
0.2 million) higher/lower, mainly as a result of foreign
exchange gains/losses on translation of US dollar de-
nominated bank deposits, trade receivables and debt.
At 31 December, if the currency had weakened/
strengthened by 1 per cent against the EURO with all
variables held constant, post –tax profit for the year
would have been NOK 0.3 million (2010: NOK 0.5
million) higher/lower, mainly as a result of foreign ex-
change gains/losses on translation of EURO denomi-
nated bank deposits, trade receivables and debt.
Price risk: The company is exposed to price risk both
because raw materials follow international market
prices for electronic and mechanical components
Note 3 Financial risk