Untitled - PRIME Gold

1302005NORILSK NICKEL • ANNUAL REPORT •NORILSK NICKEL • ANNUAL REPORT •2005131MINING AND METALLURGICAL COMPANY NORILSK NICKELNOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005MINING AND METALLURGICAL COMPANY NORILSK NICKELNOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005Adoption of new and revisedInternational Financial ReportingStandardsThe following new or revised standards and interpretationsissued by IASB and IFRIC became effective for the Group'sconsolidated annual financial statements for the year ended31 December 2005:• IAS 1 (revised) "Presentation of Financial Statements"• IAS 2 (revised) "Inventories"• IAS 8 (revised) "Accounting Policies, Changes in AccountingEstimates and Errors"• IAS 10 (revised) "Events after the Balance Sheet Date"• IAS 16 (revised) "Property, Plant and Equipment"• IAS 17 (revised) "Leases"• IAS 21 (revised) "Effect of Changes in Foreign ExchangeRates"• IAS 24 (revised) "Related Party Disclosures"• IAS 27 (revised) "Consolidated and Separate FinancialStatements"• IAS 28 (revised) "Investments in Associates"• IAS 31 (revised) "Interests in Joint Ventures"• IAS 32 (revised) "Financial Instruments: Disclosure and presentation"• IAS 33 (revised) "Earnings per Share"• IAS 36 (revised) "Impairment of Assets"• IAS 38 (revised) "Intangible Assets"• IAS 39 (revised) "Financial Instruments: Recognition andMeasurement"• IAS 40 (revised) "Investment Property"• IFRS 2 "Share-based Payments"• IFRS 3 "Business Combinations"• IFRS 4 "Insurance Contracts"• IFRS 5 "Non-current Assets Held for Sale"• IFRIC 1 "Changes in Existing Decommissioning, Restorationand Similar Liabilities"• IFRIC 2 "Members' Shares in Co-operative Entities andSimilar Instruments"The Group has adopted all of the above new and revised standardsand interpretations that are relevant to its operations.Except for the changes described below and certain additionaldisclosures provided by the Group, the adoption of the newor revised standards and interpretations has not resulted insignificant changes to the Group's accounting policies.Effect of adoption of IAS 27 (revised)"Consolidated and Separate Financial Statements"This standard requires minority interests in equity of subsidiariesto be presented on the balance sheet within equity, but separatefrom shareholders' equity; and profit for the year allocatedbetween minority interest and shareholders of the parent company.Accordingly, the Group's consolidated annual financialstatements for the year ended 31 December 2004 have beenrestated to reflect the new presentation of minority interests.Before the adoption of IAS 27 (revised) minority interests werededucted in arriving at the Group's profit for the year.Effect of adoption of IAS 39 (revised)"Financial Instruments: Recognitionand Measurement"IAS 39 (revised) eliminated the option to recognise in incomestatement gains and losses from re-measurement to fair valueof available-for-sale investments. Such gains and losses arenow recognised in equity until the related asset is sold or otherwisedisposed of. In accordance with the requirements ofthe standard, the opening balance of equity attributable toshareholders of the parent company as of 1 January 2004and all the other comparative amounts were adjusted as if thisstandard had always been in use.As a result of this change in accounting policy profit for theyear ended 31 December 2005 has been decreased by USD744 million, profit for the year ended 31 December 2004 hasbeen increased by USD 46 million and the opening balanceof equity attributable to shareholders of the parent companyas of 1 January 2004 has been increased by USD 50 million.New accounting pronouncementsAt the date of authorisation of the Group's consolidated annualfinancial statements for the year ended 31 December 2005,certain new standards and interpretations have been issuedthat are mandatory for adoption in the accounting periodsbeginning on or after 1 January 2006:• IAS 1 Amendment "Capital Disclosures"• IAS 19 Amendment "Employee Benefits"• IAS 21 Amendment "The Effects of Changes in ForeignExchange Rates - Net Investment in a Foreign Operation"• IAS 39 and IFRS 4 Amendment "Financial GuaranteeContracts"• IAS 39 Amendments "Cash Flow Hedge Accounting ofForecast Intragroup Transactions" and "The Fair ValueOption"• IFRS 6 "Exploration for and Evaluation of Mineral Resources"• IFRS 7 "Financial Instruments: Disclosures"• IFRIC 4 "Determining whether an Arrangement containsa Lease"• IFRIC 5 "Rights to Interest arising from Decommissioning,Restoration and Environmental Rehabilitation Funds"• IFRIC 6 "Liabilities arising from participating in a specificmarket - Waste Electrical and Electronic Equipment"• IFRIC 7 "Applying the Restatement Approach under IAS 29"Financial Reporting in Hyperinflationary Economies"• IFRIC 8 "Scope of IFRS 2"• IFRIC 9 "Reassessment of Embedded Derivatives"The impact of adoption of these standards and interpretationsin future periods is currently being assessed by management,however no material effect on the Group's accountingpolicies is anticipated.2. SIGNIFICANT ACCOUNTING POLICIESThe significant Group's accounting policies are set out below:(a) Basis of consolidationSubsidiariesThe consolidated annual financial statements incorporatefinancial statements of the Company and its subsidiaries, fromthe date that control effectively commenced until the datethat control effectively ceased. Control is achieved where theCompany has power to govern the financial and operating policiesof an entity so as to obtain benefits from its activities.The assets and liabilities of all subsidiaries are measured at theirfair values at the date of acquisition. The interest of minorityshareholders is stated at the minority's share of the fairvalues of the assets and liabilities recognised. Subsequently,any losses applicable to the minority interest in excess of theminority interest are allocated against the interests of the parentcompany.The financial statements of subsidiaries are prepared for thesame reporting period as those of the parent company; wherenecessary, adjustments are made to the financial statementsof subsidiaries to bring the accounting policies used by theminto line with those of the Group.All intra-group balances, transactions, and any unrealised profitsor losses arising from intra-group transactions, are eliminatedon consolidation.AssociatesAn associate is an entity over which the Group exercises significantinfluence, but not control, through participation infinancing and operating policy decisions, in which it normallyowns between 20% and 50% of the voting equity.Associates are equity accounted for from the date significantinfluence commenced until the date that significant influenceeffectively ceased.The results of associates are equity accounted based on theirmost recent financial statements. Any losses of associates arerecorded in the consolidated financial statements until theinvestment in such associates is written down to a nil value.Thereafter losses are only accounted for to the extent that theGroup is committed to providing financial support to suchassociates.The carrying value of investments in associates represents thecost of each investment, including goodwill, the share of postacquisitionretained earnings and any other movementsin reserves. The carrying value of investments in associatesis reviewed on a regular basis and if any impairment in valuehas occurred, it is written down in the period in which thesecircumstances are identified.Unrealised gains and losses resulting from transactions withassociates are eliminated to the extent of the Group's interestin these associates.Accounting for acquisitionsWhere an investment in a subsidiary or an associate is made,any excess of the purchase consideration over the fair valueof the identifiable assets, liabilities, contingent liabilities andattributable ore reserves at the date of acquisition is recognisedas goodwill. Goodwill which represents mineral resourcesis amortised on a systematic basis to recognise the depletionof the resources over the life of mine.Goodwill in respect of non-mining subsidiaries is disclosed asa goodwill and goodwill relating to associates is included withinthe carrying value of the investment in associates.Goodwill is reviewed for impairment at least annually and ifan impairment has occurred, it is recognised in the incomestatement during the period in which the circumstances areidentified and is not subsequently reversed.On disposal of a subsidiary or an associate the attributableamount of goodwill is included in the determination of theprofit or loss on disposal.Where an investment in a subsidiary or an associate is made,any excess of the Group's share in the fair value of acquiree'sidentifiable assets, liabilities and contingent liabilities over costis recognised in the income statement immediately.CONSOLIDATED ANNUAL FINANCIAL STATEMENTS OF MMCNORILSK NICKEL FOR THE YEAR ENDED 31 DECEMBER 200513