Hydro Annual Report 2011b

Notes to the consolidated financial statements
FINANCIAL STATEMENTS
Notes to the consolidated financial statements F7
Note 1 - Significant accounting policies and reporting entity
The reporting entity reflected in these financial statements includes Norsk Hydro ASA and consolidated subsidiaries (Hydro).
Hydro is headquartered in Oslo, Norway, and the group employs around 23,000 people in more than 40 countries. Hydro is a
fully integrated aluminium company with operations in all major activities along the industry value chain. Operations include
power production, bauxite mining, alumina refining, aluminium smelting and remelting, and rolling and extrusion activities.
Hydro is listed on the Oslo and London stock exchanges.
The consolidated financial statements of Norsk Hydro ASA and its subsidiaries are prepared in accordance with International
Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and the disclosure
requirements as specified under the Norwegian Accounting Law (Regnskapsloven). All standards applied by Hydro have been
endorsed by the European Union (EU) and Norwegian authorities and are effective as of December 31, 2011.
The following description of accounting principles applies to Hydro's 2011 financial reporting, including all comparative
figures. See note 3 Basis of presentation and measurement of fair value, and note 4 Critical accounting judgment and key
sources of estimation uncertainty for additional information related to the presentation, classification and measurement of
Hydro's financial reporting.
Basis of consolidation
The consolidated financial statements include Norsk Hydro ASA and subsidiaries, which are entities in which Hydro has the
power to govern the financial and operating policies of the entity (control). Control is normally achieved through ownership,
directly or indirectly, of more than 50 percent of the voting power. Currently, Hydro has more than 50 percent of the voting
power in all subsidiaries. Subsidiaries are included from the date control commences until the date control ceases.
Intercompany transactions and balances have been eliminated. Profits and losses resulting from intercompany transactions have
been eliminated.
Minority interests
Minority interests represent non-controlling interests in subsidiaries. Minority interests are reported as a separate section of the
Group's equity in accordance with IAS 27 Consolidated and Separate Financial Statements. Results attributed to minority
interests are based on ownership interest or other method of allocation if required by contract. Dividends to minority
shareholders are not presented separately.
Business combinations
Business combinations are accounted for using the acquisition method in accordance with IFRS 3 (revised 2008) Business
Combinations (IFRS 3R). Consideration is the sum of the fair values, as of the date of exchange, of the assets given, liabilities
incurred or assumed, and equity instruments issued in exchange for control of the acquiree. The fair value of Hydro's
preexisting ownership interest in an acquiree is included in the consideration, with any gain or loss recognized in Other
income, net.
The acquiree's identifiable assets, liabilities and contingent liabilities are recognized separately at the acquisition date at their
fair value irrespective of any minority interest. Goodwill is initially measured either as the excess of the consideration over
Hydro's interest in the fair value of the acquiree's identifiable net assets (partial goodwill) or as the fair value of 100 percent of
the acquiree in excess of the acquiree's identifiable net assets (full goodwill). The method is elected on a transaction-bytransaction
basis. Goodwill is not amortized, but is tested for impairment annually and more frequently if indicators of possible
impairment are observed, in accordance with IAS 36 Impairment of Assets. Goodwill is allocated to the cash generating units
or groups of cash generation units expected to benefit from the synergies of the combination and that are monitored for
internal management purposes.
The interest of minority shareholders in the acquiree is initially measured as the minority's proportion of the fair value of the
net assets recognized (partial goodwill method), or as the minority's proportion of the fair value of the acquiree (full goodwill
method). Minority interests are subsequently adjusted for changes in equity after the acquisition date.