AS NORMA

ANNOUNCEMENT

 

Accounting Policies

 

Accounting principles

 

AS Norma's consolidated financial statements are prepared

in accordance with the International Accounting Standards

(IAS) and under the historical cost convention.

 

Principles of consolidation

 

The consolidated income statements are prepared bearing

in mind the reader's desire to view related enterprises

as a common economic unit, in which the financial

statements of each company in the group is consolidated

in compliance with the International Accounting

Standards.

The consolidated financial statements include the

accounts of AS Norma and its subsidiaries (participation

over 50%). All material inter-company accounts and

transactions are eliminated.

The associated companies (AS Norma participation 20-50%)

are consolidated using the equity method; that is,

investment in the associated company is adjusted for the

amount of profit (loss) attributable to AS Norma.

Goodwill: Upon acquisition of a business, the difference

between the acquisition price and the market value of net

assets acquired is depreciated either over a period of

five years or based on the useful life of the fixed

assets.

 

Foreign currencies

 

All foreign currency transactions by AS Norma and the

group are recorded in Estonian kroons at the exchange

rate given by the Bank of Estonia valid at the date of

transaction.

Income statements of subsidiaries located outside of

Estonia are translated into Estonian kroons based on

average Bank of Estonia exchange rates for the year;

assets and liabilities in foreign currencies are

translated according to the Bank of Estonia exchange rate

valid on 31 December.

 

Cash and cash equivalents

 

As regards the cash flow statement, cash and cash

equivalents are comprised of cash in hand, deposits held

on call at banks, and investments in stocks and other

marketable securities.

 

Marketable securities

 

Marketable securities are recorded in the balance sheets

according to the lower of the acquisition cost or market

value (net of transaction costs) and changes in value are

represented in the income statement as financial income

or expenses.

 

Long-term financial assets

 

Shares of subsidiaries, associated companies and other

securities acquired over a period of more than one year

are recorded as long-term financial assets. Investments

in subsidiaries are eliminated in the consolidated

balance sheet.

 

Accounts receivable

 

Accounts receivable represented in the balance sheet are

inventoried at year's end, and a provision has been made

to cover unrecoverable accounts receivable.

 

Inventories

 

Raw materials both in warehouses and in production and

merchandise purchased are recorded in the income

statements according to the lower of cost or net

realisable value. Finished goods and work in process are

included in production costs. (This consists of direct

and indirect production costs). The cost of materials,

semi-manufactured parts and finished goods are calculated

using the weighted average cost method.

 

Property, plant and equipment

 

Assets with an acquisition cost of over 20 thousand

kroons and a useful life of more than one year are

considered as property, plant and equipment. Property,

plant and equipment are recorded at cost less accumulated

depreciation. Property, plant and equipment is accounted

for in the balance sheet according to the principle of

the lower of acquisition cost or net realisable value.

Improvements are capitalised if the value of a specific

asset is qualitatively increased to a higher level or if

it can be proved that income related to such expenses

will arise in future accounting periods.

 

Depreciation is calculated using the straight-line

depreciation method, based on estimated useful life as

follows:

 

  Buildings                18-26 years

  Machinery and equipment      7 years

  Motor vehicles               6 years

  Other assets               3-5 years

 

Intangible assets

 

Amortisation of intangible assets is calculated using the

straight-line method, based on estimated useful life as

follows:

 

  Development costs            5 years

  Purchased licences           5 years

  Goodwill                     5 years

 

Deferred income tax

 

Up  to  1998  the  deferred tax  was  calculated  on  all

temporary differences between the taxation values and net

book values of assets and liabilities. The main temporary

differences arose from depreciation of fixed assets.

 

According to the new Income Tax Law that took effect on 1

January  2000, there are no more differences between  the

taxation  and  book  values of  assets  and  liabilities.

Dividends paid by the company to resident natural persons

and non-residents are subject to income tax (26/74 of net

dividend  paid).  As a result of this  the  deferred  tax

liability as at 31.12.1998 has been charged to the income

in 1999 (see note 24).

 

The  company's  potential tax liability  related  to  the

distribution of its retained earnings as dividends is not

recorded in the balance sheet, because it is not possible

to  reliably  estimate  such  liability.  The  amount  of

potential  tax  liability related to the distribution  of

dividends  depends  on  whether  and  when  the   company

actually  pays out the dividends, and in which proportion

the  shares  are  owned  by resident  entities,  resident

natural  persons and non-residents. The maximum  possible

tax  liability  which  would become payable  if  retained

earnings  would  be fully paid out as dividends  and  all

shareholders   belonged  to  the  taxable   category   is

disclosed in Note 24.

 

Vacation pay reserve

 

The cost of the vacation pay reserve is recorded as at

the time the liability arises, that is, at the time the

employee is entitled to claim vacation pay. Earned

vacation pay is recorded in the income statement as an

expense and in the balance sheet as a current liability.

 

Warranties

 

Warranties and other similar liabilities are recorded in

the balance sheet if an event has occurred (or is likely

to occur) which results in (or is likely to result in)

said warranty being implemented.

 

Sales

 

Sales are recorded as net sales and do not include taxes,

commissions or write-downs. Invoices prepared in foreign

currencies are translated into Estonian kroons according

to the Bank of Estonia ex-change rate valid at the

invoice date.

 

Product development expenses

 

Product development expenses are generally recorded in

the income statement under "Administrative and general

expenses". If income related to expenses incurred will

arise in future reporting periods, such expenses are

capitalised in the balance sheet under "Intangible

Assets."

 

Accounting for leases

 

In the case of an operating lease, the leased asset

remains in the lessor's accounts and the lessor continues

depreciating the asset, in accordance with its useful

life. Lease revenue is recorded in accordance with the

accrual assumption.

 

 

Raivo Harand

Controller

+372 65 00 482