Hydro Annual Report 2011b

FINANCIAL STATEMENTS
Note 1 - Significant accounting policies and reporting entity F11
Research and development
Research expenditures are expensed as incurred. Development costs are capitalized as intangible assets at cost in accordance
with IAS 38 Intangible Assets when the recognition criteria are met, including probable future economic benefit and that the
cost can be measured reliably.
Depreciation and amortization
Depreciation and amortization expenses are measured on a straight-line basis over the estimated useful life of the asset,
commencing when the asset is ready for its intended use. Mine property and development costs in extractive activities are
depreciated using the unit-of-production method. Tangible and intangible assets with an indefinite useful life are not
depreciated. Estimated useful life by category is as follows:
Machinery and equipment, initial investment 4-30 years, for power plants up to 75 years
Machinery and equipment, capitalized maintenance 1-15 years
Buildings 20-50 years
Intangibles with definite lives 3-10 years, for rights related to hydroelectric power production up to 50 years
A component of an item of property, plant and equipment with a significantly differing useful life and a cost that is significant
in relation to the item is depreciated separately. At each financial year-end Hydro reviews the residual value and useful life of its
assets, with any estimate changes accounted for prospectively over the remaining useful life of the asset.
Impairment of property, plant and equipment and intangible assets
Property, plant and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable, in accordance with IAS 36 Impairment of Assets. Intangible assets
with indefinite useful life are tested for impairment at least annually. The carrying amount is not recoverable if it exceeds the
higher of the asset's or cash generating unit's fair value less costs to sell or the value in use. An impairment loss is recognized in
the amount that the carrying value exceeds its recoverable amount. Losses are reversed in the event of a subsequent increase in
the recoverable amount of an impaired asset, however, impairment of goodwill is not reversed.
Financial assets
Financial assets represent a contractual right by Hydro to receive cash or another financial asset in the future. Financial assets
include financial instruments used for cash-flow hedges, financial derivatives and commodity derivative contracts. Non-current
assets include long-term financial instruments, other investments, long-term loans to employees, long-term bank accounts,
restricted cash and other long-term receivables.
Financial assets are derecognized when the rights to receive cash from the asset have expired or when Hydro has transferred its
rights to receive cash flows and has either transferred substantially all of the risks and rewards of the asset or has transferred
control of the asset.
Cash and cash equivalents, short-term investments, accounts receivable and other non-current financial assets are discussed
below. All other financial assets are measured at amortized cost.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet includes cash, bank deposits and all other monetary instruments with a maturity
of less than three months from the date of acquisition, and are measured at fair value. Cash and cash equivalents in the
statement of cash flows is presented net of outstanding bank overdrafts connected to cash management activities.
Short-term investments
Short-term investments include bank deposits and all other monetary instruments with a maturity between three and twelve
months at the date of purchase. Short-term investments also includes Hydro's current portfolio of marketable equity and debt
securities which are considered trading securities and measured at fair value. The resulting unrealized holding gains and losses
are included in Financial income. Investment income is recognized when earned.
Accounts receivable
Accounts receivable are initially recognized at fair value, and subsequently accounted for at amortized cost and are reviewed for
impairment on an ongoing basis. Individual accounts are assessed for impairment taking into consideration delayed payments
and other indicators of financial difficulty. Other overdue accounts receivable are assessed for impairment based on prior