AAK Annual Report 2018

IFRS 15 Revenue from contracts with customers IFRS 15 “Revenue from contracts with customers” governs how revenue should be recognized. IFRS 15 replaces IAS 18 Revenue and IAS 11 Construction Contracts and the associated SIC and IFRIC. The standard must be applied for the financial year starting on January 1, 2018 or later. Earlier application is permitted. The principles on which IFRS 15 is based are designed to give users of financial statements more useful informa- tion about the company’s revenue. The extended duty of disclosure means that information on revenue type, the time of settlement, uncertainties linked to recognition of revenue and cash flow attributable to the company’s contracts with customers must be provided. According to IFRS 15, revenue must be recognized when the customer gains control over the product or service sold and is able to use the product or service and gain benefit from it. The Group has applied IFRS 15 Revenue from Contracts with Customers for their annual reporting period commencing 1 January 2018. IFRS 15 was adopted without restating comparative information since the Group used the modified retrospective transition approach. There were no effects on equity as the previously applied principles are in accordance with IFRS 15. IFRS 16 Leases In January 2016, IASB published a new leasing standard that will replace IAS 17 Leases and the associated interpre- tations IFRIC 4, SIC-15 and SIC-27. The standard requires that assets and liabilities attributable to all leases, with some exceptions, be recognized in the balance sheet. This recognition is based on the view that the lessee has a right to use an asset during a specific period of time and also has an obligation to pay for this right. The recognition for the lessor will be essentially unchanged. The standard is applicable for a financial year beginning January 1, 2019 or later. The Group will be affected primarily for lease agreements of rental for premises and lease of vehicles. The Group has applied the simplified transition approach and has, in accordance with the standard, not restated the comparatives. The Group will apply the majority of the practical expedients allowed for the first time that IFRS 16 is applied, the most significant being to account for leases with a remaining lease term of less than 12 months as at January 1, 2019 as short-term leases. The Group will also, after initial application, apply the practical expedients of accounting for leases with a lease term of 12 months or less and leases of low value as an expense on a straight-line basis in the income statement. The Group’s lease liability as at January 1, 2019 will be approximately SEK 900 million and the right-of-use asset about SEK 900 million. Equity will not be affected in the transition to IFRS 16. Consolidated financial statements Subsidiaries The consolidated financial statements cover AAK AB and all its subsidiaries. Subsidiaries are all companies over which the Group has a controlling influence. The Group controls a company when it is exposed to or is entitled to variable return from its holding in the company and is able to affect the return by exerting influence in the company. Subsidiaries are included in the consolidated financial statements as from the date on which the controlling influence is transferred to the Group. They are excluded from the consolidated financial statements as from the date on which the controlling influence ceases. Purchase method The acquisition of subsidiaries is recognized using the purchase method of accounting. The cost of acquisition is measured as the fair value of the assets provided as consideration, liabilities incurred and shares issued by the Group. Transaction costs relating to acquisitions are expensed as they are incurred. Identifiable assets acquired and liabilities and obligations assumed in an acquisition are measured initially at fair value at the acquisition date. For each acquisition, the Group determines whether all non-controlling interests in the acquired companies are to be recognized at fair value or according to the proportional share of the acquired company’s net assets. The excess of the purchase price, any non-controlling interests and the fair value of previous shareholdings at the acquisition date over the fair value of the Group’s interest in identifiable net assets is recognized as goodwill. If this amount is less than the fair value for the acquired subsidiary’s assets, the difference is recognized directly in the statement of comprehensive income. All intra-group transactions, balances and unrealized gains on transactions are eliminated, unless the transaction provides evidence of impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Transactions with holders of non-controlling interests The Group handles transactions with holders of non-con- trolling interests in the same ways as transactions with the Group’s shareholders. In the event of acquisitions from holders of non-controlling interests, the company recognizes the difference between the purchase price paid and the actual acquired portion of the carrying amount of the subsidiary’s net assets in equity. Gains and losses on disposals to holders of non-controlling interests are also recognized in equity. When the Group no longer holds a controlling or significant influence, each shareholding is remeasured at fair value and the change in the carrying amount is recognized in the income statement. Fair value is used as the primary carrying amount and forms the basis for ongoing recognition of the remaining ownership interest as an associate company, joint venture or financial asset. All amounts relating to divested units previously recognized under “Other comprehensive income” are recognized as though the Group had directly disposed of the respective assets or liabilities. This can result in amounts previously recognized in “Other comprehensive income” being reclassified as earnings. If the equity interest in an associate is reduced but signifi- cant influence still remains, where relevant only a proportional share of the amounts previously recognized in “Other compre- hensive income” is recognized as earnings. 65 2 Note Summary of significant accounting policies