Panalpina Annual Report 2006

Consolidated and Annual Financial Statements 2006
84 Panalpina Annual Report 2006
In relation to trade receivables, individual provision for impairment is made when there is objective evidence (such as
the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect
all of the amounts due under the original terms of the invoice. For trade receivables not individually impaired the
Group implemented a policy to determine the best estimation of the fair values. Such estimates are based on analyses
of historical trends, the Group’s experience and markets observations. The estimates are reviewed, and adjusted if
appropriate, at each financial year-end. The carrying amount of the receivables is reduced through use of an allowance
account. Impaired debts are derecognized when they are assessed as uncollectible.
Available-for-sale financial investments
If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal
payment and amortization) and its current fair value, less any impairment loss previously recognized in the income
statement, is transferred from equity to the income statement. Reversals in regard to equity instruments classified as
available-for-sale are not recognized in the income statement. Reversals of impairment losses on debt instruments
are reversed through the income statement; if the increase in fair value of the instrument can be objectively related to
an event occurring after the impairment loss was recognized in the income statement.
Borrowings and interest-bearing loans
All borrowings and loans are initially recognized at fair value of the consideration received less directly attributable
transaction cost.
All initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective
interest method. Gains and losses are recognized in the income statement when the liabilities are derecognized also through
the amortization process. Borrowing and interest bearing loan costs are recognized as an expense when incurred.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities
designated upon initial recognition as of fair value through profit and loss.
Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term.
Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as
effective hedging instruments. Gains or losses on liabilities held for trading are recognized in profit and loss.
Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated as a financial
liability at fair value through profit or loss, except where the embedded derivative does not significantly modify the cash flows
or it is clear that separation of the embedded derivative is prohibited.
Derecognition of financial assets and liabilities
Financial assets
A financial asset is derecognized when the rights to receive cash flows from the asset have expired and when the Group has
transferred its rights to receive cash flow for the asset and either has substantially transferrred all the risks and rewards of
the asset or has transferred control of the asset.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired.
Where a financial liability is replaced by another from the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original
liability. The recognition of a new liability and the difference in the respective carrying amounts is recognized in the income
statement.
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) resulting from a past event,
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimation can be made of the amount of the obligation. The expense relating to any provision is recorded in the income
statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a
current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase
in the provision due to the passage of time is recognized as a finance cost.
Provisions are established in particular for:
• employees’ pension fund balances, and
• claims from freight forwarding.