Example Financial Statements 2007 Granthor Corporation 31 December 2007

Transcription

1 Example Financial Statements 2007 Granthor Corporation

2 (C) 2007 Grant Thornton International. All rights reserved. Member firms of the Grant Thornton International organisation are independently owned and operated. Grant Thornton is not a worldwide partnership The name "Grant Thornton" signifies one of the world s leading organisations of accounting and consulting firms providing assurance, tax and specialist business advice. Services are delivered nationally by the member and correspondent firms of Grant Thornton International, a network of independent firms throughout the world. Grant Thornton International is a non-practising international umbrella organisation and does not deliver services in its own name. Important Disclaimer: These example financial statements were developed as an information resource. It is intended as a guide only and the application of its contents to specific situations will depend on the particular circumstances involved. While every care has been taken in its presentation, personnel who use this document to assist in evaluating compliance with International Financial Reporting Standards should have sufficient training and experience to do so. No person should act specifically on the basis of the material contained herein without considering and taking professional advice. Neither Grant Thornton International, nor any of its member firms, partners or employees, accept any responsibility for any errors it might contain, whether caused by negligence or otherwise, or any loss, howsoever caused, incurred by any person as a result of utilising or otherwise placing any reliance upon this document. Release 2.0 (July 2007)

3 Contents Contents 1 Introduction 2 Balance sheet 4 Statement of changes in equity 6 Income statement 8 Statement of cash flows 9 Notes 11 Appendix A Organising the income statement format by nature of income and expenses 70 Nature of Expense format - subsequent changes 72 Appendix B: Presenting a statement of recognised income and expense (SORIE) 74 Appendix C: Segment Reporting under IAS 14 76

4 Introduction The implementation of International Financial Reporting Standards (IFRS) remains a challenge, even a few years after their broad introduction in major economies around the world. Practices continue to evolve and recent Standards and Interpretations have continuously changed the requirements on the recognition, measurement and de-recognition of a reporting entity's resources, obligations and transactions. Presentation and disclosures under IFRS, however, constitute another complex area, as requirements are set out in almost all pronouncements by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC). Significant accounting policies used by the reporting entity and the judgements management has made in the process of applying the entity's accounting policies are an important feature of IFRS financial statements. Major Standards such as IFRS 7 Financial Instruments: Disclosures and IFRS 8 Operating Segments set out new requirements as to how an entity should report and explain its financial position. The way in which elements in IFRS financial statements are illustrated also draws increasing attention from the users of financial statements as well as authorities in the accounting profession. Recent reports by regulatory bodies have addressed companies as well as their auditors when IFRS financial statements were not in line with the disclosure and presentation requirements of the Standards and Interpretations. This publication, Example Financial Statements 2007, has been prepared to illustrate a set of consolidated financial statements of a fictional entity (Granthor Corporation and subsidiaries, 'Granthor', 'Group'). It has been developed as a training tool for Grant Thornton International member firms and their staff. Its objective is to explain the "look and feel" of typical IFRS financial statements and to give an example of how presentation and disclosure requirements set out under current IFRS may be met. It includes different areas of financial reporting, which are typical for enterprises active in manufacturing and retailing, but also in many other industry sectors. For further guidance on the Standards and Interpretations applied, reference is made to IFRS sources throughout the document on the left hand side of each page.

5 The publication has been reviewed and updated to reflect developments since its original issue in Example Financial Statements 2007 especially feature the following additions: - Capital management disclosures and, as an alternative in the appendix, a Statement of Recognised Income and Expenses (SORIE) in accordance with IAS 1 Presentation of Financial Statements. - Updated disclosures for defined benefit-type pension schemes under IAS 19 Employee Benefits - Presenting and analysing discontinued operations in accordance with IFRS 5 Non-current Assets held for Sale and Discontinued Operations - Information on financial instruments in accordance with IFRS 7 Financial Instruments: Disclosures - Segment Reporting in accordance with IFRS 8 Operating Segments Example Financial Statements 2007 reflect the major presentation and disclosure requirements under IFRS as promulgated by the International Accounting Standards Board (IASB). Nevertheless, it should be noted that this set of example financial statements does not cover all potential accounting transactions that can be observed in practice. Hence, not all disclosure and presentation requirements have been addressed and therefore, this publication should neither be used as a substitute for studying IFRS nor as the sole tool for preparing financial statements in accordance with IFRS. This document has been finalised on 13 July 2007 and therefore does not take into account any pronouncements by the IASB or IFRIC that have been published at a later date. Furthermore, no additional financial reporting requirements have been taken into consideration that companies may or may not be subject to on a national level, for example by a stock exchange listing or by the EU endorsement process. Further, audit reporting is not addressed in this document. It also needs to be noted that the manner of accounting, presentation and disclosure illustrated in this set of example financial statements should not be considered the only acceptable result of the application of IFRS. Ultimately, the reporting entity's management is responsible for the form and content of financial statements as required by IFRS and therefore may find other approaches to compliance preferable over those presented. Most importantly, the use of this publication is not a substitute for the use of a comprehensive and up to date disclosure checklist to ensure completeness in IFRS financial statements. Grant Thornton International July 2007

6 4 Granthor Corporation IAS 1.46 Balance sheet IAS 1.46 (d) Notes 31 December December 2006 IAS 1.46 (e) '000s '000s IAS 1.57 Assets IAS 1.70 Non-current Goodwill 7 X,XXX X,XXX IAS 1.68 (c) Other intangible assets 8 X,XXX X,XXX IAS 1.68 (a) Property, plant and equipment 9 XX,XXX XX,XXX IAS 1.68 (e) Investments accounted for using the equity method 5.3 XXX XXX IAS 1.68 (b) Investment property 11 X,XXX X,XXX IAS 1.68 (d) Long term financial assets 12 X,XXX X,XXX IAS 1.68 (n) Deferred tax assets 13 XXX XXX IAS 1.69 XX,XXX XX,XXX IAS 1.57 Current IAS 1.68 (g) Inventories 14 XX,XXX XX,XXX Construction contracts 15 X,XXX X,XXX IAS 1.68 (h) Trade and other receivables 16 XX,XXX XX,XXX IAS 1.68 (d) Other short term financial assets 17 XXX XXX IAS 1.68 (m) Current tax assets XXX XXX IAS 1.68 (i) Cash and cash equivalents 18 XX,XXX XX,XXX IAS 1.69 XX,XXX XX,XXX IAS 1.68A (a) Non-current assets classified as held for sale 19 XXX XXX IAS 1.69 Total assets XXX,XXX XXX,XXX

7 Granthor Corporation 5 IAS 1.46 (d) Notes 31 December December 2006 IAS 1.46 (e) '000s '000s Equity Equity attributable to shareholders of Granthor Corp. IAS 1.68 (p) Share capital 20.1 XX,XXX XX,XXX Additional paid-in capital 20.2 XX,XXX XX,XXX Translation reserve XXX XXX Revaluation reserve X,XXX X,XXX Retained earnings XX,XXX XX,XXX XX,XXX XX,XXX IAS 1.68 (o) Minority interest XX,XXX XX,XXX IAS 1.69 Total equity XX,XXX XX,XXX Liabilities IAS 1.57 Non-current Pension and other employee obligations 21.3 X,XXX X,XXX IAS 1.68 (l) Borrowings 22 XX,XXX XX,XXX Other liabilities 25 X,XXX X,XXX IAS 1.68 (n) Deferred tax liabilities 13 X,XXX X,XXX IAS 1.70 XX,XXX XX,XXX IAS 1.69 IAS 1.57 Current IAS 1.68 (k) Provisions 23 X,XXX X,XXX Pension and other employee obligations 21.3 XXX XXX IAS 1.68 (j) Trade and other payables 24 XX,XXX XX,XXX IAS 1.68 (m) Borrowings 22 XXX XXX Current tax liabilities Other liabilities 25 X,XXX X,XXX IAS 1.69 XX,XXX XX,XXX IAS 1.69 Total liabilities XX,XXX XX,XXX IAS 1.69 Total equity and liabilities XXX,XXX XXX,XXX

8 6 Granthor Corporation IAS 1.46 Statement of changes in equity 1 IAS 1.46 (d) (all amounts presented in '000s) Equity attributable to equity holders Minority Total of Granthor Corporation Interest Equity Share Additional Trans- Other Retained reserves capital paid-in lation 2 earnings capital reserve IAS 1.97 (c) 1 January 2006 XX,XXX XX,XXX XXX X,XXX X,XXX XXX XX,XXX IAS (f) Revaluation of land XX XX XX Cash flow hedging IAS (a) - gains (losses) recognised in equity IAS (b) - transferred to profit and loss IAS (h)(ii) Available-for-sale securities - gains (losses) recognised in equity - transferred to profit and loss on sale XX XX XX (XX) (XX) (XX) XX XX XX (XX) (XX) (XX) IAS (b) Currency translation (X) (X) IAS (a) IAS 1.96 (b) IAS 1.96 (a) IAS 1.96 (c) Income taxes relating to items charged or credited to equity Net income recognised directly in equity Profit for the year ended 31 December 2006 Total recognised income and expense for the period (X) (X) (X) (XX) (XX) X,XXX XX (XX) XX X,XXX XX X,XXX IAS 1.97 (a) Employee share based XXX XXX compensation Dividends (X,XXX) (X,XXX) 31 December 2006 XX,XXX XX,XXX XXX X,XXX X,XXX XXX XX,XXX 1 As an alternative example, a Statement of Recognised Income and Expenses (or SORIE) and its accompanying notes can be found in appendix B on page Components of other reserves (revaluation reserve, available-for-sale reserve, hedging reserve, etc.) should be analysed separately if material

9 Granthor Corporation 7 IAS 1.46 (d) (all amounts presented in '000s) Equity attributable to equity holders Minority Total of Granthor Corporation Interest Equity Share Additional Trans- Other Retained capital paid-in lation reserves earnings capital reserve IAS 1.97 (c) 1 January 2007 XX,XXX XX,XXX XXX X,XXX X,XXX XXX XX,XXX IAS (f) Revaluation of land XX XX XX Cash flow hedging IAS (a) - gains (losses) recognised in equity IAS (b) - transferred to profit and loss XX XX XX (XX) (XX) (XX) IAS (h) (ii) Available-for-sale securities - gains (losses) recognised in equity - transferred to profit and loss on sale XX XX XX (XX) (XX) (XX) IAS (b) Currency translation (X) (X) IAS (a) IAS 1.96 (b) IAS 1.96 (a) IAS 1.96 (c) Income taxes relating to items charged or credited to equity Net income recognised directly in equity Profit for period ended Total recognised income and expense for the period (X) (X) (XX) (XX) (XX) X,XXX XX X,XXX (XX) (XX) X,XXX XX (XX) IAS 1.97 (a) Shares issued XX XXX XXX Dividends (X,XXX) (X,XXX) XX,XXX XX,XXX XXX X,XXX XX,XXX XXX XX,XXX

10 8 Granthor Corporation IAS 1.46 Income statement 3 IAS 1.46 (d) Notes IAS 1.46 (e) '000s '000s IAS 1.81 (a) Revenue 6 XX,XXX XX,XXX Other income XXX XXX Costs of material (XX,XXX) (XX,XXX) Employee benefits expense 21.1 (XX,XXX) (XX,XXX) Depreciation, amortisation and impairment of nonfinancial assets (X,XXX) (X,XXX) Other expenses (X,XXX) (X,XXX) Operating Result X,XXX X,XXX IAS 1.81 (c) Result from equity accounted investments 5.3 XX XX Result from investment property 11 XXX (XXX) IAS 1.81 (b) Finance costs 26 (XXX) (XXX) Finance income 26 XXX XXX Other financial result 27 XX XX Result from continuing operations before tax X,XXX X,XXX IAS 1.81 (d) Tax expense, net 28 (X,XXX) (X,XXX) Net result from continuing operations X,XXX X,XXX IAS 1.81 (e) Net result from discontinued operations 19 X,XXX X,XXX IAS 1.81 (f) Net result for the period X,XXX X,XXX IAS 1.82 (a) Attributable to minority interest XX XX IAS 1.82 (b) Attributable to equity shareholders of Granthor Corporation X,XXX X,XXX IAS 1.46 (e) IAS Earnings per share 29 Euro Euro Continuing operations: IAS Basic X.XX X.XX IAS Diluted X.XX X.XX Discontinued operations: IAS Basic X.XX X.XX IAS Diluted X.XX X.XX 3 This income statement format illustrates an example of the "nature of expense method". See appendix A, page 70 for a format illustrating the "function of expense" or "cost of sales" method.

11 Granthor Corporation 9 IAS 1.46 Statement of cash flows 4 Notes IAS 1.46 (d, e) '000s '000s IAS 7.10 Operating activities Result for the period before tax X,XXX X,XXX Adjustments 30 X,XXX X,XXX Change in inventories X,XXX X,XXX Change in trade and other receivables (X,XXX) (X,XXX) Change in trade and other payables XXX XXX Change in pension and other employee obligation (XXX) (XXX) Change in provisions (XXX) (XXX) IAS 7.35 Taxes paid (X,XXX) (X,XXX) X,XXX X,XXX IAS 7.10 Investing activities Additions to property, plant and equipment (XXX) (XXX) Proceeds from disposals of property, plant and equipment XX XX Additions to other intangible assets (XXX) (XXX) Proceeds from disposals of intangible assets X X IAS 7.39 Acquisition of Good Buy Inc., net of cash 5.1 X (X,XXX) IAS 7.39 Sale of Highstreet Ltd. and subsidiaries 19 XX,XXX XX,XXX Purchase of financial assets (XXX) (XXX) Proceeds from disposals of financial assets XXX XXX IAS 7.31 Interest received XXX XXX IAS 7.31 Dividends received XX XX (XXX) (X,XXX) IAS 7.10 Financing activities Proceeds from bank loans X X,XXX Repayment of bank loans (X,XXX) (X,XXX) Discharge of finance lease liability (XXX) (XXX) Proceeds from share issue XXX XXX IAS 7.31 Interest paid (XXX) (XXX) IAS (f) IAS 7.31 Dividends paid (X,XXX) (X,XXX) IAS 7.45 Net change in cash and cash equivalents X,XXX X,XXX Cash and cash equivalents, beginning of period X,XXX X,XXX Cash and cash equivalents, end of period 18 XX,XXX XX,XXX 4 This format represents the indirect method of determining operating cash flow.

12 10 Granthor Corporation

13 Granthor Corporation 11 IAS 1.46 Notes IAS 1.46 (a) IAS 1.46 (b) IAS (b) 1 Nature of operations Granthor Corporation and subsidiaries' ('the Group') principal activities include the development, manufacturing, sale and service of customised IT and telecommunication systems. By integrating these activities, the Group acts as a one-stop-shop for the modern day communication requirements of small- to medium-sized companies. The Group provides phone and intranet based in-house applications including the integration of mobile end devices into new and existing IT and telecommunication structures. Development and manufacturing activities concentrate on the design and assembly of combined IT and telecommunications systems for clients. The group also sells and services the hardware and software products of the Group s business partners. The acquisition of Good Buy Inc. described in note 5.1 is in line with Granthor s strategy to increase online sales capacity. The sale of HTG Ltd. during the year under review (see note 19) further contributed to concentrating on Granthor's core activities. IAS 1.14 IAS (a) IAS (c) IAS 1.46 (c) IAS General information The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Granthor Corporation, a limited liability corporation, is the Group's ultimate parent company. It is incorporated and domiciled in Euroland. The address of Granthor Corporation's registered office, which is also its principal place of business, is 149a Great Place, Greatville, Euroland. Granthor Corporation's shares are listed on the Greatstocks Stock Exchange. The financial statements for the year ended (including the comparatives for the year ended 31 December 2006) were approved by the board of directors on 8 March Under the security regulations act of Euroland, amendments to the financial statements are not permitted after they have been approved.

14 12 Granthor Corporation IAS (b) 3 Change in accounting policies Overall considerations IAS (b) Granthor has adopted for the first time IFRS 7 Financial Instruments: Disclosures and IFRS 8 Operating Segments in its 2007 consolidated financial statements. Both Standards have been applied retrospectively, ie with amendments to the 2006 accounts and their presentation. The 2006 comparatives contained in these financial statements therefore differ from those published in the financial statements for the year ended 31 December Other Standards or Interpretations relevant for IFRS financial statements did not become effective during the current financial year. Significant effects on current, prior or future periods arising from the first-time application of the standards listed above in respect of presentation, recognition and measurement of accounts are described in the following notes. An overview of Standards and Interpretations that will become mandatory for Granthor in future periods is given in note 3.5. IAS 8.28 (a), (f) IAS 8.28(a), (f) 3.2 Amendment of IAS 1 Presentation of Financial Statements In accordance with the amendment of IAS 1 Presentation of Financial Statements, Granthor now reports on it capital management objectives, policies and procedures in each annual financial report. The new disclosures that become necessary due to this change in IAS 1 can be found in note Adoption of IFRS 7 Financial Instruments: Disclosures IFRS 7 Financial Instruments: Disclosures is mandatory for reporting periods beginning on 1 January 2007 or later. The new Standard replaces and amends disclosure requirements previously set out in IAS 32 Financial Instruments: Presentation and Disclosures and has been adopted early by the Group in its 2007 consolidated financial statements. All disclosures relating to financial instruments including all comparative information have been updated to reflect the new requirements. In particular, Granthor's financial statements now feature a sensitivity analysis, to explain the Group's market risk exposure in regards to its financial instruments, and a maturity analysis that shows the remaining contractual maturities of financial liabilities, each as at the balance sheet date. The first-time application of IFRS 7, however, has not resulted in any prior-period adjustments of cash-flows, net income or balance sheet line items. 5 The discussion of the initial application of IFRSs needs to be disclosed only in the first financial statements after the new or revised rules have been adopted by the entity.

15 Granthor Corporation Adoption of IFRS 8 Operating Segments IFRS 7.35 Granthor has decided to adopt early IFRS 8 Operating Segments, which replaces IAS 14 Segment Reporting. However, while the adoption of this Standard has not affected the way Granthor identifies separate operating segments relevant for segment reporting, Granthor now presents segment results in accordance with internal management reporting information. The main chances are that: Segment results are based on operating results of each segment. Finance costs and income, including gains and losses resulting from accounting for investments at equity and taxes or the results of any discontinued operations are excluded from segment results. In addition, Granthor's management does not consider post-employment benefit expenses or share-based payment expenses when making decisions about allocating resources to each segment and assessing its performance. Refer to note 4.5 for further information about the entity's updated segment reporting accounting policies. The new format can be found in note 6. IAS 8.30 (a) 3.5 Standards and Interpretations not yet applied by Granthor The following new Standards and Interpretations, which are yet to become mandatory, have not been applied in Granthor's 2007 group financial statements. 6 Standard or Interpretation Effective for in reporting periods starting on or after IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, 1 January 2008 Minimum Funding Requirements and their Interaction IFRIC 13 Customer Loyalty Programmes 1 July 2008 IFRIC 12 Service Concession Arrangements 1 January 2008 IFRIC 11 IFRS 2 Group and Treasury Share Transactions 1 March 2007 IAS 23 Borrowing Costs (revised 2007) 1 January 2009 IAS 8.30 (b) Based on Granthor's current business model and accounting policies, management does not expect material impacts on Granthor's group financial statements when the Interpretations become effective. The possible outcome of applying the revised version of IAS 23 is yet to be determined. Under the new Standard, all borrowing costs that are directly attributable to qualifying assets are to be capitalised. This may affect the measurement of assets which are self constructed in the course of Granthor's ongoing research and development activities. The group's current accounting policy is to immediately expense all borrowing costs. A change in accounting policies will affect the timing of expense recognition as well as the presentation of the resulting expenses (interest costs vs. amortisation). Granthor does not intend to apply any of these pronouncements early. 6 This publication was finalised on 13 July Hence, it does not take into account any pronouncements by the IFRIC or IASB that have been published at a later date.

16 14 Granthor Corporation IAS (b) IAS (a) IAS Summary of accounting policies 4.1 Overall considerations The significant accounting policies that have been used in the preparation of these consolidated financial statements are summarised below. The financial statements have been prepared using the measurement bases specified by IFRS for each type of asset, liability, income and expense. The measurement bases are more fully described in the accounting policies below. All accounting estimates and assumptions that are used in preparing the financial statements are consistent with Granthor's latest approved budged forecast where applicable. Judgements are based on the information available at each balance sheet date. Although these estimates are based on the best information available to management, actual results may ultimately differ from those estimates. 4.2 Basis of consolidation The group financial statements consolidate those of the company and all of its subsidiary undertaking(s) drawn up to. Subsidiaries are all entities over which the Group has the power to control the financial and operating policies. Granthor obtains and exercises control through voting rights. Unrealised gains and losses on transactions between the group and its subsidiaries are eliminated. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment losses from Granthor's group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the group. Business combinations are dealt with by the purchase method. The purchase method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the acquired business, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the acquired subsidiary are included in the consolidated balance sheet at their fair values, which are also used as the bases for subsequent measurement in accordance with the group accounting policies. Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of acquisition cost over the fair value of the group's share of the identifiable net assets of the acquired subsidiary at the date of acquisition. IAS Investments in associates and joint ventures Entities whose economic activities are controlled jointly by the Group and by other venturers independent of the Group ( joint ventures ) are accounted for using proportionate consolidation. Associates are those entities over which the Group is able to exert significant influence but which are neither subsidiaries nor interests in a joint venture. Investments in associates are initially recognised at cost and subsequently accounted for using the equity method. Acquired investments in associates are also subject to the purchase method as explained in note 4.2 above. However, any goodwill or fair value adjustment attributable to the share in the associate is included in the amount recognised as investment in associates.

17 Granthor Corporation 15 All subsequent changes to the Group s share of interest in the equity of the associate are recognised in the group's carrying amount of the investment. Changes resulting from the profit or loss generated by the associate are reported under "Result from equity accounted investments" in the income statement and therefore affect net results of the group. These changes include subsequent depreciation, amortisation or impairment of the fair value adjustments of assets and liabilities. Items that have been recognised directly in the associate's equity are recognised in the consolidated equity of the group. However, when the group's share of losses in an associate equals or exceeds its interest in the associate, including any unsecured receivables, the group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. If the associate subsequently reports profits, the investor resumes recognising its share of those profits only after its share of the profits exceeds the accumulated share of losses that has previously not been recognised. Unrealised gains and losses on transactions between the group and its associates and joint ventures are eliminated to the extent of the group's interest in the associates. Where unrealised losses are eliminated, the underlying asset is also tested for impairment losses from Granthor's group perspective. Amounts reported in the financial statements of associates and jointly controlled entities have been adjusted where necessary to ensure consistency with the accounting policies adopted by the group. IAS IAS (a) IAS (b) 4.4 Foreign currency translation Granthor's consolidated financial statements are presented in Euro ( ), which is also the functional currency of the parent company. Foreign currency transactions are translated into the functional currency of the respective group entity, using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary balance sheet items at year-end exchange rates are recognised in the income statement under "other income" or "other expenses". In the group's financial statements, all items and transactions of group entities with a functional currency other than the Euro ( the Group's presentation currency) were translated into Euros upon consolidation. Assets and liabilities have been translated into Euros at the closing rate at the balance sheet date. Income and expenses have been translated into the group's presentation currency at the average rates 7 over the reporting period. Any differences arising from this procedure have been charged/credited to the currency translation reserve in equity. Goodwill and fair value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into Euros at the closing rate. 7 Note that the use of average rates is appropriate only if rates do not fluctuate significantly (IAS 21.40).

18 16 Granthor Corporation IFRS 8.22 (a) IFRS 8.22 (b) IFRS 8.27 (a) 4.5 Segment reporting In identifying its operating segments, management generally follows Granthor's service lines, which represent the main products and services provided by the Group. The activities undertaken by the consulting segment includes the sale, customisation and integration of IT and telecommunication systems. Maintenance of these systems is undertaken by the service segment. The retail segment includes the entire Group's internet based selling activities of hardware and software products. Each of these operating segments is managed separately as each of these service lines requires different technologies and other resources as well as marketing approaches. All inter-segment transfers are carried out at arm's length prices. IFRS 8.27 (b), (d) The accounting policies Granthor uses for segment reporting under IFRS 8 are the same as those used in its financial statements, with the exceptions that post-employment benefit expenses, expenses relating to share-based payments, and research costs relating to new business activities are not included in arriving at the operating result of the entity's operating segments. In addition, corporate assets which are not directly attributable to the business activities of any operating segment are not allocated. In the financial periods under review, this primarily applies to the Group's headquarters and the Granthor Research Lab in Greatville. IAS (a) 4.6 Income and expense recognition, borrowing costs Revenue is measured by reference to the fair value of consideration received or receivable by the group for goods supplied and services provided, excluding VAT and trade discounts. Revenue is recognised upon the performance of services or transfer of risk to the customer. Revenue from the sale of goods is recognised when all the following conditions have been satisfied: The group has transferred to the buyer the significant risks and rewards of ownership of the goods supplied or the services provided. This is generally when the customer has approved the services that have been provided or has taken undisputed delivery of goods. The amount of revenue can be measured reliably it is probable that the economic benefits associated with the transaction will flow to the group, and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenue from customer-related long-term construction contracts is recognised by reference to the stage of completion of the contract at the balance sheet date (see note 4.17).

19 Granthor Corporation 17 Granthor commits to extensive after-sales support in its service segment. The amount of the selling price associated with the subsequent servicing agreement is deferred and recognised as revenue over the period during which the service is performed. This deferred income is included in "other liabilities". Operating expenses are recognised in the income statement upon utilisation of the service or at the date of their origin. Expenditure for warranties is recognised and charged against the associated provision when the related revenue is recognised. Interest income and expenses are reported on an accrual basis. Dividends received, other than those from investments in associates, are recognised at the time of their distribution. IAS (a) All borrowing costs are expensed as incurred. 4.7 Net results from discontinued operations A discontinued operation is a component of the entity that either has been disposed of, or is classified as held for sale, and: represents a separate major line of business or geographical area of operations is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale. The results from discontinued operations, including prior year components of profit or loss, are presented in a single amount in the income statement. This amount, which comprises the post-tax result of discontinued operations and the post-tax gain or loss resulting from the measurement and disposal of assets classified as held for sale (see also note 4.20), is further analysed in note 19. The disclosures for discontinued operations in the prior year relate to all operations that have been discontinued by the balance sheet date for the latest period presented. Where operations previously presented as discontinued are now regarded as continuing operations, prior period disclosures are correspondingly re-presented. 4.8 Goodwill Goodwill represents the excess of the acquisition cost in a business combination over the fair value of the group's share of the identifiable net assets acquired. Goodwill is carried at cost less accumulated impairment losses. Negative goodwill is recognised immediately after acquisition in the income statement. Refer to note 4.12 for a description of impairment testing procedures. IAS (a) IAS (b) 4.9 Other intangible assets and research and development activities Other intangible assets include acquired and internally developed software used in production or administration. They are accounted for using the cost model whereby capitalised costs are amortised on a straight line basis over their estimated useful lives (three to five years), as these are considered finite. In addition, they are subject to impairment testing as described in note Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and install the specific software.

20 18 Granthor Corporation IAS (b) IAS (b) Costs associated with maintaining computer software, ie expenditure relating to patches and other minor updates as well as their installation, are expensed as incurred. Expenditure on research (or the research phase of an internal project) is recognised as an expense in the period in which it is incurred. Costs that are directly attributable to the development phase of new customised software for IT and telecommunication systems are recognised as intangible assets provided they meet the following recognition requirements: Completion of the intangible asset is technically feasible so that it will be available for use or sale, The group intends to complete the intangible asset and use or sell it. The group has the ability to use or sell the intangible asset. The intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits. There are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and the expenditure attributable to the intangible asset during its development can be measured reliably. Development costs not meeting these criteria for capitalisation are expensed as incurred. IAS (a) IAS (b) IAS (d) IAS Directly attributable costs include employee (other than directors) costs incurred on software development along with an appropriate portion of relevant overheads. Internally generated software developments recognised as intangible assets are subject to the same subsequent measurement method as externally acquired software licences. However, until completion of the development project, the assets are subject to impairment testing only as described below in note Granthor's management monitors progress of internal research and development projects by using a project management system. The capitalisation of development costs is initiated when all the criteria mentioned are met. However, to distinguish any research-type project phase from the development phase, it is Granthor's accounting policy to also require a detailed forecast of sales or cost savings generated by the intangible asset. The forecast is incorporated into the group's overall budget forecast as the capitalisation of development costs commences. This ensures that managerial accounting, impairment testing procedures and accounting for internallygenerated intangible assets is based on the same data. Granthor's management also monitors whether the recognition requirements for development costs continue to be met. This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems after the time of recognition.

21 Granthor Corporation 19 IAS (a) IAS (b) IAS (c) IAS (a) IAS (b) IAS (a) IAS (b) IAS (a) IAS (c) 4.10 Property, plant and equipment Land held for use in production or administration is stated at revalued amounts. As no finite useful life for land can be determined, related carrying amounts are not depreciated. Revalued amounts are fair market values determined in appraisals by external professional valuers once every three years, unless market-based factors indicate any immediate impairment risk. Any revaluation surplus arising upon appraisal of land is credited to the "revaluation reserve" in equity, unless the carrying amount of that asset has previously suffered a revaluation decrease or impairment loss as described in To the extent that any decrease has previously been recognised in profit or loss, a revaluation increase is booked to profit or loss with the remaining part of the increase charged to equity. Downward revaluations of land assets are recognised upon appraisal or impairment testing, with the decrease being charged against any revaluation surplus in equity relating to this asset and any remaining decrease recognised in profit or loss. Buildings, technical equipment, fittings and furniture are carried at acquisition cost or manufacturing cost less subsequent depreciation and impairment losses. Buildings that are leasehold property are also included in property plant and equipment if they are held under a finance lease. Such assets are depreciated over their expected useful lives (determined by reference to comparable owned assets) or over the term of the lease, if shorter. Depreciation is calculated straight-line to write down the cost and valuation less estimated residual value of property, plant and equipment other than freehold land. The periods generally applicable are: Buildings IT equipment Other equipment years 2-5 years 3-12 years Material residual value estimates are updated as required, but at least annually, whether or not the asset is revalued. IAS (a) IAS (b) 4.11 Leased assets In accordance with IAS 17 Leases, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is then recognised at the inception of the lease at the fair value of the leased asset or, if lower, the present value of the lease payments plus incidental payments, if any. A corresponding amount is recognised as a finance leasing liability, irrespective of whether some of these lease payments are payable up-front at the date of inception of the lease. Leases of land and buildings are split into a land and a building element, in accordance with the relative fair values of the leasehold interests at the date the asset is initially recognised. Subsequent accounting for assets held under finance lease agreements, ie depreciation methods and useful lives, correspond to those applied to comparable assets which are legally owned by Granthor. The corresponding finance leasing liability is reduced by lease payments less finance charges, which are expensed to finance costs.

22 20 Granthor Corporation The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the income statement over the period of the lease. All other leases are treated as operating leases. Payments on operating lease agreements are recognised as an expense on a straight-line basis. Associated costs, such as maintenance and insurance, are expensed as incurred. IAS In applying these requirements of IAS 17 Leases, Granthor's management considers its leases of IT equipment as well as its main warehouse facilities as finance lease arrangements. Economic ownership is deemed to be transferred as the group will mostly obtain legal ownership of these assets at the end of the lease term or because lease terms cover the majority of the leased assets' economic life Impairment testing of goodwill, other intangible assets and property, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors goodwill. Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. IAS An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. To determine the recoverable amount, Granthor's management estimates expected future cash flows from each cashgenerating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for Granthor's impairment testing procedures are directly linked to the Group's latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect their respective risk profiles as assessed by Granthor s management. Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment charge that has been recognised is reversed if the cash-generating unit s recoverable amount exceeds its carrying amount.

23 Granthor Corporation Investment property Investment properties are properties held to earn rentals and for capital appreciation. IAS (a) IAS (d) IAS (e) IAS (b) Investment properties are revalued annually and are included in the balance sheet at their open market values. These are determined by external professional valuers with sufficient experience with respect to both the location and the nature of the investment property. Any gain or loss resulting from either a change in the fair value or the sale of an investment property is immediately recognised in profit or loss as result from investment property Accounting for financial assets Financial assets other than hedging instruments are divided into the following categories: loans and receivables financial assets at fair value through profit or loss available-for-sale financial assets held-to-maturity investments. IFRS 7.B5(c) IFRS 7.B5(f) IFRS 7.B5(g) IAS 1.108(a) IAS 1.108(b) IFRS 7.B5(e) IFRS 7.B5(f) IAS 1.108(a) IAS 1.108(b) IAS Also: IFRS 7.B5(a) Financial assets are assigned to the different categories on initial recognition, depending on the characteristics of the instrument and its purpose. A financial instrument's category is relevant for the way it is measured and whether any resulting income and expenses is recognised in profit or loss or directly in equity. See note 33.5 for a summary of Granthor's financial assets by category. Generally, Granthor recognises all financial assets using settlement day accounting. An assessment of whether a financial asset is impaired is made at least at each reporting date. All income and expense relating to financial assets are recognised in the income statement line item "finance costs" or "finance income", respectively. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition these are measured at amortised cost using the effective interest method, less provision for impairment. Any change in their value is recognised in profit or loss. Granthor's trade and most other receivables fall into this category of financial instruments. Discounting, however, is omitted where the effect of discounting is immaterial. Significant receivables are considered for impairment on a case-by-case basis when they are past due at the balance sheet date or when objective evidence is received that a specific counterparty will default. All other receivables are reviewed for impairment in groups, which are determined by reference to the industry and region of a counterparty and other available features of shared credit risk characteristics, if any. The percentage of the write down is then based on recent historical counterparty default rates for each identified group. Financial assets at fair value through profit or loss include financial assets that are either classified as held for trading or are designated by the entity to be carried at fair value through profit or loss upon initial recognition. By definition, all derivative financial instruments that do not qualify for hedge accounting fall into this category. However, no other type of Granthor's financial instruments currently falls into this category.

24 22 Granthor Corporation IFRS 7.B5(e) IFRS 7.B5(b) IFRS 7.B5(b) IAS 1.108(a) IAS 1.108(b) IAS 1.108(a) IAS 1.108(b) IAS IAS 1.108(b) IFRS 7.22(a) IFRS 7.22(c) Any gain or loss arising from derivative financial instruments is based on changes in fair value, which is determined by direct reference to active market transactions or using a valuation technique where no active market exists. Available-for-sale financial assets are non-derivative financial assets that do not qualify for inclusion in any of the other categories of financial assets. Granthor's available-forsale financial assets include listed securities, a number of listed debentures, and its participation in XY Ltd. The investment in XY Ltd. is reported at cost less any impairment charges, as its fair value can currently not be reliably estimated. All other available-for-sale financial assets are measured at fair value, with subsequent changes in value recognised in equity. Gains and losses arising from financial instruments classified as available-for-sale are only recognised in profit or loss when they are sold or when the investment is impaired. In the case of impairment, any loss previously recognised in equity is transferred to the income statement. Losses recognised in the income statement on equity instruments are not reversed through the income statement but charged to equity. Losses recognised in prior period consolidated income statements resulting from the impairment of debt securities are reversed through the income statement, if the subsequent increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss. Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity. Investments are classified as held-to-maturity if it is the intention of the Group's management to hold them until maturity. Granthor currently holds bonds that fall into this category. Held-to-maturity investments are subsequently measured at amortised cost using the effective interest method. In addition, if there is objective evidence that the investment has been impaired, the financial asset is measured at the present value of estimated cash flows. Any changes to the carrying amount of the investment are recognised in profit or loss Cash flow hedge accounting A specific accounting treatment is required for derivatives that are designated as hedging instruments in cash flow hedge relationships. To qualify for hedge accounting, the hedging relationship must meet several strict conditions with respect to documentation, probability of occurrence, hedge effectiveness and reliability of measurement. All other derivative financial instruments are accounted for at fair value through profit or loss. For the reporting periods under review, Granthor has designated certain forward currency contracts as hedging instruments in cash flow hedge relationships. These arrangements have been entered into to mitigate currency exchange risk arising from certain legally binding sales and purchase orders denominated in US Dollars. For the periods under review this results in the recognition of financial assets and liabilities, which are presented within "short-term financial assets" or "short-term financial liabilities", respectively, on the face of the balance sheet. To the extent that the hedge is effective, changes in the fair value of derivatives designated as hedging instruments in cash flow hedges are reported in equity and "recycled" when the hedging relationship ceases (normally when the hedged transaction occurs). At the time the hedged item affects profit or loss, any gain previously