Ardagh Glass Finance plc - Irish Stock Exchange

ACCOUNTING POLICIES (Continued)
INVENTORIES
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is
based on the first-in, first-out basis and includes expenditure incurred in acquiring the inventories and
bringing them to their existing location and condition. Raw materials are valued on the basis of
purchase cost on a first-in, first out basis. In the case of finished goods and work-in-progress, cost
includes direct materials, direct labour and attributable overheads based on normal operating capacity
and excludes borrowing costs.
Net realisable value is the estimated proceeds of sale less all further costs to completion, and less
all costs to be incurred in marketing, selling and distribution. Full provision is made for all damaged,
deteriorated, obsolete and unusable materials.
PROPERTY, PLANT AND EQUIPMENT
(i) Owned assets
Items of property, plant and equipment are stated at cost less accumulated depreciation and
impairment losses, except for land which is shown as cost less impairment.
Where parts of an item of property, plant and equipment have different useful lives, they are
accounted for as separate items of property, plant and equipment.
(ii) Leased assets
Leases of property, plant and equipment where the Group has substantially all the risks and
rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s
inception at the lower of the fair value of the leased property and the present value of the minimum
lease payments. Each lease payment is allocated between the liability and finance charges so as to
achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of
finance charges, are included in borrowings. The interest element of the finance cost is charged to the
income statement over the lease period using the effective interest method so as to produce a constant
periodic rate of interest on the remaining balance of the liability for each period. The property, plant
and equipment acquired under finance leases is depreciated over the shorter of the asset’s useful life
and the lease term.
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as
operating leases. Payments made under operating leases (net of any incentives received from the lessor)
are charged to the income statement on a straight-line basis over the period of the lease.
(iii) Subsequent costs
The Group recognises in the carrying amount of an item of property, plant and equipment the cost
of replacing part of such an item when that cost is incurred if it is probable that the future economic
benefits embodied with the item will flow to the Group and the cost of the item can be measured
reliably. All other costs are recognised in the income statement as an expense as incurred.
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