annual report 2004 - Severočeské doly a.s.

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Held-to-maturity investments are included in non-current assets unless they mature within 12 months of the balance
sheet date. Available-for-sale investments are classified as current assets if management intends to realize them
within 12 months of the balance sheet date.
All purchases and sales of investments are recognized on the settlement date.
Investments are initially measured at cost, which is the fair value of the consideration given for them, including
transaction costs.
Gains or losses on measurement to fair value of available-for-sale investments are recognized as a separate
component of Shareholders Equity, until the investment is sold or otherwise disposed of, or until it is determined
to be impaired, at which time the cumulative gain or loss previously recognized in equity is included in net profit or
loss for the period.
Held-to-maturity investments are carried at amortized cost using the effective interest rate method.
Receivables, Payables and Accrual
Receivables are stated at the fair value of the consideration given and are carried at amortized cost, after provision
for any uncollectible amounts. At December 31, 2004 and 2003 the provision for uncollectible receivables amounted
to CZK 94 and 136 million, respectively.
Payables are recorded at invoiced values and accruals are reported at expected settlement values.
Cash and Cash Equivalents
Cash includes cash on hand and cash with banks. Cash equivalents are short-term, highly liquid investments
that are readily convertible to known amounts of cash with original maturities of three months or less and that
are subject to an insignificant risk of change in value.
Materials and Supplies
Materials and supplies are principally composed of plant maintenance materials and spare parts. These items
are valued at cost after provision for obsolete items. These materials are recorded in inventory when purchased and
then expensed or capitalized to plant, as appropriate, when used. Accumulated provisions for obsolete items
of CZK 56 million and CZK 54 million were created against materials and supplies as of December 31, 2004 and 2003,
respectively.
Intangible Assets
Intangible assets consist mainly of software and are valued at their acquisition cost and related expenses. Intangible
assets are recognized if it is probable that the future economic benefits that are attributable to the asset will
flow to the enterprise; and the cost of the asset can be measured reliably. After initial recognition, intangible assets
are measured at cost less accumulated amortization and any accumulated impairment losses. Intangible assets are
amortized on a straight-line basis over the best estimate of their useful lives of 4 years. The amortization period and
the amortization method are reviewed annually at each financial year-end.
Income Taxes
The provision for corporate tax is calculated in accordance with Czech tax regulations and is based on the income
or loss reported under Czech accounting regulations, adjusted for appropriate permanent and temporary differences
from Czech taxable income. In the Czech Republic, income taxes are calculated on an individual company basis
as the tax laws do not permit consolidated tax returns. Current income taxes are provided at a rate of 28% and
31%, respectively for the years ended December 31, 2004 and 2003 after adjustments for certain items which are not
deductible for taxation purposes.
Certain items of income and expense are recognized in different periods for tax and financial accounting purposes.
Deferred taxes are calculated using the balance sheet liability method. Deferred income taxes are provided on temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Deferred tax assets and liabilities are measured using the tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled
based on tax rates enacted or substantially enacted at the balance sheet date.
Based on the Income Tax Act valid in the Czech Republic at 2004 year-end, the income tax rates will be 26%
and 24% in the years 2005 and 2006 and on, respectively (see Note 12).
Deferred tax assets and liabilities are recognized regardless of when the timing difference is likely to reverse.
Deferred tax assets and liabilities are not discounted and are classified as non-current assets (liabilities)
in the Consolidated Balance Sheets. Deferred tax assets are recognized when it is probable that sufficient taxable
profits will be available against which the deferred tax assets can be utilized. A deferred tax liability is recognized
for all taxable temporary differences.
Current tax and deferred tax are charged or credited directly to equity if the tax relates to items that are credited
or charged, in the same or a different period, directly to equity.
Provisions
A provision is recognized when, and only when, the company has a present obligation (legal or constructive) as
a result of a past event and it is probable that an outflow of resources will be required to settle the obligation,