ARCO VARA AS - NASDAQ OMX Baltic

Interest income from receivables and held-to-maturity investments is recognised under “Financial and
investment activity income” and “Financial and investment activity expenses” in the income
statement.
Financial assets measured at acquisition cost
A financial asset, measured at acquisition cost is written down to its recoverable amount if the
recoverable amount is less than the carrying amount of the financial asset. The recoverable amount of
financial assets measured at cost consists of the estimated future cash flows from the financial asset,
discounted with the average rate of return from similar financial assets on the market. The impairment
loss is recognised under “Financial and investment activity expenses” in income statement and shall
not be reversed.
The derecognition of financial assets will take place when the Group no longer controls the rights to
receive cash flows arising from the financial assets, or when the Group is obliged to, without a
material delay, transfer to a third party all cash flows attributable to the asset, and the majority of the
risks and rewards related to the financial asset.
Derivative financial instruments
The Group uses derivative instruments such as interest rate swap to hedge the risk associated with
interest rate fluctuations. Such derivative instruments are initially stated at fair value on the contract
conclusion date. Subsequent to initial recognition, the instrument will be revaluated in accordance with
the change in its fair value. Derivatives are carried as assets when the fair value is positive and as
liabilities when the fair value is negative. The fair value of the currently operational interest rate swap
contract is determined by reference to discounted future cash flows based on estimates on fluctuation
of 6-month EURIBOR (from Reuters).
Gains and losses arising from changes in the fair value of the derivative instrument are charged to the
“Financial and investment activity income” and “Financial and investment activity expenses” of the
period except for derivative instruments that qualify for hedge accounting. The Group had no
instruments that qualified for hedge accounting in the reporting period, or in the comparative period.
Inventories
Finished products and work-in-progress are recorded at production cost, consisting of the direct and
indirect production costs incurred upon bringing the inventories to their present condition and amount.
General production expenses are allocated to work-in-progress and finished goods, based on a normal
production volume. Other inventories are recorded at acquisition cost consisting of all the direct and
indirect expenditures necessary for converting inventories into ready for sale. Indirect costs, which are
included in the cost of the real estate recorded as inventory, are also borrowing costs (interest,
amortisation of contract fees, etc) related to the financing of construction of real estate items.
Borrowing costs are capitalised into the acquisition cost of inventory until completion of the
construction. Borrowing costs related to registered immovable and apartments treated as movables are
included in the acquisition cost until a permit for use has been issued.
Generally. inventories are accounted for by using weighted average cost method. An exception to this
rule is registered immovable and apartments, treated as movables, where individual cost method is
used.
Inventories are valued in the balance sheet at whichever is lower, acquisition cost or the net realisable
value. Net realisable value is the estimated selling price in the ordinary course of business, less
estimated costs of completion and the estimated costs necessary to make the sale. The amount of
write-down of inventories to their net realisable value is recorded as expenses of the reporting period,
under “cost of sales” in the income statement.
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