Hydro Annual Report 2011b

F12
FINANCIAL STATEMENTS
Note 1 - Significant accounting policies and reporting entity
collection experience, the customer portfolio, local economic conditions and management assessment. Discounting generally
does not have a material effect on accounts receivable, however, in special cases discounting may be applied.
Other non-current assets
Other non-current assets includes Hydro's portfolio of non-marketable equity securities that are not consolidated or accounted
for using the equity method. The portfolio is classified as available-for-sale securities and is measured at fair value with changes
in fair value recognized in Other comprehensive income. Investment income is recognized when earned. Fair value of the
investment is estimated based on valuation model techniques for non-marketable securities. When the estimated fair value of
the investment is below Hydro's cost, the impairment is recognized in earnings. Any reduction in fair value previously
recognized in Other comprehensive income is reclassified to the income statement.
Financial liabilities
Financial liabilities represent a contractual obligation by Hydro to deliver cash in the future, and are classified as either short or
long-term. Financial liabilities include financial instruments used for cash-flow hedges, financial derivatives, commodity
derivative contracts and other financial liabilities. Financial liabilities, with the exception of derivatives, are initially recognized
at fair value including transaction costs directly attributable to the transaction and are subsequently measured at amortized cost.
Financial liabilities are derecognized when the obligation is discharged through payment or when Hydro is legally released from
the primary responsibility for the liability.
Derivative instruments
Derivative instruments are marked-to-market with the resulting gain or loss reflected in the income statement, except when the
instruments meet the criteria for cash flow hedge accounting. Derivatives, including hedging instruments and embedded
derivatives with expected cash flows within twelve months from the balance sheet date, or held solely for trading are classified as
short-term. Instruments with expected cash flows more than 12 months after the balance sheet date are classified as long-term.
Derivative contracts are presented gross on the balance sheet unless contract terms include the possibility to settle the contracts
on a net basis and Hydro has the intention and ability to do so. The ability to settle net is conditional on simultaneous
offsetting cash-flows.
Physical commodity contracts are evaluated on a portfolio basis. If a portfolio of contracts contains contracts of a similar nature
that are settled net in cash, or the assets are not intended for own use, the entire portfolio of contracts is recognized at fair value
and classified as derivatives. Physical commodity contracts that are entered into and continue to be held for the purpose of the
receipt or delivery of the commodity in accordance with Hydro's expected purchase, sale or usage requirements (own use) are
not accounted for at fair value. Commodity purchase contracts are generally considered to be the primary source for usage
requirements. Hydro's own production of such commodities, for instance electricity, is considered to be available for use or sale
at its discretion unless relevant concessions contains restrictions for use.
Derivative commodity instruments are marked-to-market with their fair value recorded in the balance sheet as either assets or
liabilities. Adjustments for changes in the fair value of the instruments are reflected in the current period's revenue and/or cost,
unless the instrument is designated as a cash flow hedge instrument and qualifies for hedge accounting.
Forward currency contracts and currency options are recognized in the financial statements and measured at fair value at each
balance sheet date with the resulting gain or loss recorded in Financial expense.
Interest income and expense relating to swaps are netted and recognized as income or expense over the life of the contract.
The fair value option is currently not utilized by Hydro.
Hedge accounting is applied when specific hedge criteria are met, including documentation of the hedge relationship. The
changes in fair value of the hedging instruments are offset in part or in full by the corresponding changes in the fair value or
cash flows of the underlying exposures being hedged. Gains and losses on cash flow hedging instruments are recognized in
Other comprehensive income and deferred in the Hedging reserve in Other components of equity until the underlying
transaction is recognized in earnings. Deferred gains and losses relating to forecasted hedged transactions that are no longer
expected to occur are immediately recognized in earnings. Any amounts resulting from hedge ineffectiveness for both fair value