Note 31 – Classification of financial instruments

Accounting principles

Duni Group has applied IFRS 9 since January 1, 2018. IFRS 9 replaces the parts of IAS 39 covering the recognition and derecognition of financial instruments from the balance sheet, the classification and measurement of financial assets and liabilities, the impairment of financial assets and hedge accounting.

Classification

The Group’s principles for the classification and measurement of financial assets are based on an assessment of both (i) the company’s business model for managing financial assets and (ii) the characteristics of the contractual cash flows from the financial asset.

Financial assets are initially measured at fair value plus, if the asset is not recognized at fair value through profit or loss, transaction costs directly attributable to the purchase. Transaction costs attributable to financial assets measured at fair value through profit or loss are recognized as an expense in the income statement directly. Purchases and sales of financial assets are recognized on the transaction day, which is the date on which the Group undertakes to purchase or sell the asset.

Financial assets and liabilities are set off and recognized at a net amount in the balance sheet, but only when there is a legal right to set off the recognized amounts and there is an intention to settle them with a net amount or to simultaneously realize the asset and settle the debt. The legal right may not be dependent on future events and must be legally binding on the Company and the counterparty, both in normal business operations and in the event of suspension of payments, insolvency or bankruptcy.

Derivative instruments

The Group’s derivatives are measured at fair value in the balance sheet. In cases where hedge accounting is applied or if the derivatives comprise a package of options in respect of acquired subsidiaries, the changes in value are recognized through other comprehensive income. In other cases, the changes in value are recognized through profit or loss, including cases where they financially hedge the risk but hedge accounting is not applied. See more in Note 28 Derivative instruments.

Assets measured at amortized cost

Duni Group only classifies its financial assets as assets measured at amortized cost when the following requirements are met:

– the asset is part of a business model with the goal of collecting contract sure cash flows, and

– the contract terms create cash flows that solely consist of capital and interest on the outstanding capital at specific points in time

The following financial assets are carried at amortized cost; Financial fixed assets, Other receivables, Accrued income, Trade receivables and Cash and cash equivalents. These assets were measured at amortized cost under the previous policies as well.

Assets measured at fair value through profit or loss

Apart from derivative instruments, there are no financial assets measured at fair value through profit or loss.

Assets measured at fair value through other comprehensive income

There are no financial assets measured at fair value through other comprehensive income.

Financial liabilities measured at amortized cost

Long-term and short-term interest-bearing liabilities and other financial liabilities such as accounts payable and accrued expenses are included in this category. These liabilities are measured at amortized cost. Accounts payable comprise obligations to pay for goods or services which have been acquired from suppliers in the course of operating activities. Accounts payable are classified as short-term liabilities if they fall due for payment within one year. Financial liabilities are initially measured at fair value, net of transaction costs. Thereafter, financial liabilities are measured at amortized cost, and any difference between the amount received (net of transaction costs) and the repayment amount is recognized in the income statement allocated over the loan period, applying the effective interest rate method. In the event of early repayment of loans, any pre-payment interest penalties are reported in the income statement at the time of settlement. Loan expenses are charged to income for the period to which they relate. Distributed dividends are recognized as a liability after the Annual General Meeting has approved the dividend.

Financial liabilities measured at fair value through profit or loss

Apart from derivative instruments, there are no financial assets measured at fair value through profit or loss.

Financial liabilities measured at fair value through other comprehensive income

Apart from derivative instruments, there are no financial assets measured at fair value through profit or loss.

Calculation of fair value

The fair value of listed financial assets traded on an active market is based on the listed market prices on the balance sheet date. The listed market price used for the Group’s financial assets is the current bid price. For financial instruments which are not traded on an active market, the fair value is determined through the use of various valuation techniques. The Group uses a number of different methods and makes assumptions based on the market conditions prevailing on the balance sheet date. Listed market prices or broker listings for similar instruments are used with respect to long-term liabilities. Other techniques, such as calculation of discounted cash flows, are used to establish the fair value of the remaining financial instruments.

The carrying amount of accounts receivable and accounts payable, less any impairment, is assumed to correspond to fair value since these items are short-term in nature. For information purposes, the fair value of financial liabilities is calculated by discounting the future contracted cash flows to the current market interest rate which is available to the Group for similar financial instruments. For other financial assets and liabilities, the fair value is deemed to be in line with the carrying amount, due to the short expected maturity.

Pursuant to the standard for financial instruments, disclosure is required regarding measurement to fair value per level in the following fair value hierarchy:

Level 1 – Listed prices (unadjusted) on active markets for identical assets or liabilities. Level 2 – Other observable data for assets or liabilities comprises listed prices included in Level 1, either directly (as price) or indirectly (derived from price). Level 3 – Data for assets or liabilities which is not based on observable market data.

All derivative instruments are classified in accordance with Level 2, except for the put option to the minority shareholders, which is classified in accordance with level 3.

Derecognition of financial assets and liabilities

Financial instruments are derecognized from the balance sheet when all risks and rewards have been transferred to another party or when obligations have been met.

Impairment of non-financial assets

With respect to goodwill and other assets with an undetermined useful life, an annual assessment is conducted to ascertain that the recoverable amount, i.e. the higher of net realizable value or value in use, exceeds the carrying amount. With respect to other non-financial assets, a similar assessment is carried out as soon as there are indications that the carrying amount is too high. The asset’s value is written down to the recoverable amount as soon as it is shown that it is lower than the carrying amount.