MOL GROUP Annual Report

Joint venturesA joint venture is a contractual arrangement whereby two or more parties (venturers) undertake an economic activity that issubject to joint control. Joint control exists only when the strategic financial and operating decisions relating to the activityrequire the unanimous consent of the venturers. A jointly controlled entity is a joint venture that involves the establishment ofa company, partnership or other entity to engage in economic activity that the Group jointly controls with its fellow venturers.The Company’s interests in its joint ventures are accounted for by the proportionate consolidation method, where aproportionate share of the joint venture’s assets, liabilities, income and expenses is combined with similar items in theconsolidated financial statements on a line-by-line basis. The financial statements of the joint ventures are prepared forthe same reporting year as the parent company, using consistent accounting policies. The joint venture is proportionatelyconsolidated until the date on which the Group ceases to have joint control over the venture.They did, however, give rise to additional disclosures.– IFRS 1 – First-time Adoption of International Financial Reporting Standards– IFRS 2 – Share-based Payment– IFRS 5 – Non-current assets Held for Sale and Discontinued Operations– IFRS 8 – Operating Segments– IAS 1 – Presentation of Financial Statements– IAS 7 – Statement of Cash Flows– IAS 17 – Leases– IAS 36 – Impairment of Assets– IAS 39 – Financial Instruments: Recognition and MeasurementWhen the Group contributes or sells assets to the joint venture, any portion of gain or loss from the transaction is recognizedbased on the substance of the transaction. When the Group purchases assets from the joint venture, the Group does notrecognize its share of the profits of the joint venture from the transaction until it resells the assets to an independent party.Losses on intragroup transactions are recognised immediately if the loss provides evidence of reduced net realisable valueof current assets or impairment loss.When the joint control is lost, the Group measures and recognises its remaining investment at its fair value unless the jointcontrol does not become a subsidiary or associate. The difference between the carrying amount of the joint entity and thefair value of the remaining investment together with any proceeds from disposal is recognised in profit or loss.Investments in associatesAn associate is an entity over which the Group is in a position to exercise significant influence through participation in thefinancial and operating policy decisions of the investee, but which is not a subsidiary or a jointly controlled entity.The Group’s investments in its associates are accounted for using the equity method of accounting. Under the equity method,the investment in the associate is carried in the balance sheet at cost plus post acquisition changes in the Group’s share ofnet assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is notamortised. The income statement reflects the share of the results of operations of the associate. Where there has been achange recognized directly in the equity of the associate, the Group recognises its share of any changes and discloses this,when applicable, in the statement of changes in equity. Profits and losses resulting from transactions between the Group andthe associate are eliminated to the extent of the interest in the associate.The reporting dates of the associate and the Group are identical and the associate’s accounting policies conform to thoseused by the Group for like transactions and events in similar circumstances.The principal effects of these changes are as follows:IAS 7 Statement of Cash FlowsThe amendment constitutes that only expenditure that results in asset recognition can be classified as “investing” in thestatement of cash flows. Consequently, exploration costs recorded as an expense in the consolidated income statement arenow presented as “operating” cash flow as opposed to its previous categorization of “investing”. This modification resultedin HUF 7,843 million and 5,790 million reclassification of cash outflow from investing to operating cash flow in 2010 and 2009,respectively. Comparative periods have been restated accordingly.2.3 Summary of significant accounting policiesi) Presentation CurrencyBased on the economic substance of the underlying events and circumstances the functional currency of the parent companyand the presentation currency of the Group have been determined to be the Hungarian Forint (HUF).ii) Business CombinationsBusiness combinations are accounted for using the acquisition method. This involves assessing all assets and liabilitiesassumed for appropriate classification in accordance with the contractual terms and economic conditions and recognisingidentifiable assets (including previously unrecognized intangible assets) and liabilities (including contingent liabilities andexcluding future restructuring) of the acquired business at fair value as at the acquisition date. Acquisition-related costs arerecognised in profit or loss as incurred.Notes to the financialstatementsInvestments in associates are assessed to determine whether there is any objective evidence of impairment. If there isevidence that the recoverable amount of the investment is lower than its carrying value, then the difference is recognised asimpairment loss in the income statement. Where losses were made in previous years, an assessment of the factors is madeto determine if any loss may be reversed.When the significant influence over the associate is lost, the Group remeasures and recognises any retaining investment atits fair value. The difference between the carrying amount of the associate and the fair value of the retaining investmenttogether with any proceeds from disposal is recognised in profit or loss.2.2 Changes in Accounting PoliciesThe accounting policies adopted are consistent with those applied in the previous financial years, apart from some minormodifications in the classification of certain items in the balance sheet or the income statement, none of which has resulted ina significant impact on the financial statements. While the comparative period has been restated, an opening balance sheethas not been included as the reclassifications made were not considered material. In addition, the finalization of accountingfor the INA business combination and the cessation of classifying INA’s gas trading business as a discontinued operation gaverise to additional restatements of the amounts reported in the comparative period.The Group has adopted the following new and amended IFRS and IFRIC interpretations during the year. Except as notedbelow, adoption of these standards and interpretations did not have any effect on the financial statements of the Group.When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasuredto fair value as at the acquisition date and the resulting gain or loss is recognised in profit or loss.Contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Subsequentchanges to the fair value of the contingent consideration are adjusted against the cost of acquisition, only if they qualify asperiod measurement adjustments and occur within 12 months from the acquisition date. All other subsequent changes in thefair value of contingent consideration are accounted for either in profit or loss or as changes to other comprehensive income.Changes in the fair value of contingent consideration classified as equity are not recognised.Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the businesscombination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingentliabilities. If the consideration transferred is lower than the fair value of the net assets of the acquiree, the fair valuation, aswell as the cost of the business combination is re-assessed. Should the difference remain after such re-assessment, it is thenrecognised in profit or loss as other income. Following initial recognition, goodwill is measured at cost less any accumulatedimpairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisitiondate, allocated to each of the Group’s cash generating units, or groups of cash generating units, that are expected to benefitfrom the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to thoseunits or groups of units. Each unit or group of units to which the goodwill is allocated represents the lowest level within theGroup at which the goodwill is monitored for internal management purposes, and is not larger than a segment based on theGroup’s reporting format determined in accordance with IFRS 8 Operating Segments.94 MOL Group annual report 2010 95