DRAVA, KUPA, RJE»INA, LOKVARKA, LI»ANKA LIKA, DOBRA ...

HEP ANNUAL REPORT 2010
80
CHAPTER 6 - FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS OF THE HEP GROUP (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
FOREIGN CURRENCIES (continued)
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign
operations are expressed in Croatian kuna using exchange rates prevailing at the date of the statement of financial
position. Income and expense items are translated at the average exchange rates for the period, unless exchange
rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions
are used. Exchange differences arising on the year-end translation, if any, are classified as equity and recognised in
the Group’s foreign currency translation reserve. Such exchange differences are recognised in profit or loss in the
period in which the foreign operation is disposed of.
TAXATION
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the
income statement because it excludes items of income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using
tax rates that have been enacted or substantively enacted by the end of reporting period.
Deferred tax
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit, and are accounted for using
the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences,
and deferred tax assets are generally recognised for all deductible temporary differences to the extent that
it is probable that taxable profits will be available against which those deductible temporary differences can be
utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the
initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects
neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised on the basis of taxable temporary differences on investments in subsidiaries
and associates and joint ventures, unless the Group is able to control the reversal of the temporary difference
and it is probable that the temporary difference will not reverse in foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to
the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the
asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in
which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets
reflects the amount in which the Group expects, at the reporting date, to recover or settle the carrying amount of
its assets and liabilities.
Current and deferred tax for the period
Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items
credited or debited directly to equity, in which case the tax is also recognised directly in equity, or where they arise
from the initial accounting for a business combination.
In the case of a business combination, the tax effect is taken into account in calculating goodwill or in determining
the excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and
contingent liabilities over cost.