<strong>Nycomed</strong> <strong>Annual</strong> <strong>Report</strong> <strong>2008</strong> 31• IAS 23 “Borrowing Costs” (revised) iseffective for periods beginning on orafter 1 January 2009.• IAS 27 “Consolidated and SeparateFinancial Statements – Cost of anInvestment in a Subsidiary, JointlyControlled Entity or Associate”(amendments) effective for periodsbeginning on or after 1 January 2009,requires the effects of all transactionswith non-controlling interests to berecorded in equity if there is no change incontrol and these transactions will nolonger result in goodwill or gains andlosses.• IAS 27 “Consolidated and SeparateFinancial Statements – Cost of anInvestment in a Subsidiary, JointlyControlled Entity or Associate”(amendments) effective for periodsbeginning on or after 1 January 2009, alsospecifies the accounting when control islost. Any remaining interest in the entity isre-measured to fair value, and gains andlosses are recognised in profit or loss.• IAS 32 “Financial instruments:Presentation” and IAS 1 “Presentation ofFinancial Statements – Puttable FinancialInstruments and Obligations Arising onLiquidation” (amendments) are effectivefor periods beginning on or after1 January 2009.• IAS 39 “Financial Instruments: Recognitionand Measurement” is effective for periodsbeginning on or after 1 July <strong>2008</strong>.• IAS 39 “Financial Instruments: Recognitionand Measurement – Eligible HedgedItems” (amendment) is effective forperiods beginning on or after 1 July 2009.• IFRIC 13 “Customer Loyalty Programmes”is effective for periods beginning on orafter 1 July <strong>2008</strong>.• IFRIC 16 “Hedges of a Net Investment in aForeign Operation” is effective for periodsbeginning on or after 1 October <strong>2008</strong>.In August <strong>2008</strong>, IASB also adopted a projectto deal with non-urgent but necessaryamendments to IFRS named “Improvementsto International Financial <strong>Report</strong>ing Standards”.The Improvements are effective for periodsbeginning on or after 1 January 2009 unlessstated otherwise. The standards affected arethe following: IFRS 5 “Non-current AssetsHeld for Sale and Discontinued Operations”;IAS 1 “Presentation of the FinancialStatements”; IAS 16 “Property, Plant andEquipment”; IAS 19 “Employee Benefits”;IAS 23 “Borrowing Costs”; IAS 27“Consolidated and Separate FinancialStatements”; IAS 28 “Investments inAssociates”; IAS 31 “Interests in JointVentures”; IAS 36 “Impairment of Assets”;IAS 39 “Financial Instruments: Recognitionand Measurement”; IAS 40 “InvestmentProperty”.The Group decided not to adopt the abovementioned amended standards early. Theyare however not expected to have anymaterial effect on recognition andmeasurement at the time of the adoption.Except as described above, the accountingpolicies set out below have been appliedconsistently to all periods presented in theseconsolidated financial statements and havebeen applied consistently by Group entities.SIGNIFICANT ACCOUNTING ESTIMATESAND JUDGEMENTSThe preparation of the Group’s consolidatedfinancial statements in conformity with IFRSrequires management to make judgements,estimates and assumptions that affect thereported amounts of revenues, expenses,assets and liabilities, and the disclosure ofcontingent liabilities at the reporting date.Management bases its estimates on historicalexperience and various other assumptionsthat are believed to be reasonable under thecircumstances. This forms the basis formaking judgements about the reportedcarrying amounts of revenues and expensesthat may not be readily apparent from othersources. Actual results could differ fromthose estimates. Estimates are used whenaccounting for sales discounts and incentives,depreciation, amortisation, employeebenefits, restructuring and other provisions,contingencies and any asset impairments.Revisions to accounting estimates arerecognised in the period in which the estimateis revised and in any future periods affected.Management believes the following arethe significant accounting estimates andrelated judgements used in the preparationof its consolidated financial statements.
32 <strong>Nycomed</strong> <strong>Annual</strong> <strong>Report</strong> <strong>2008</strong>Financial Statements>Indirect production costWork in progress and finished goods arerecognised at cost measured by using theaverage weighted price method. Costcomprises direct production costs, such asthe cost of raw materials, consumables,energy and labour, and indirect productioncosts, such as employee cost, depreciationand maintenance.The indirect production costs are measuredbased on a standard cost method, which isreviewed regularly in order to ensurerelevant measures of utilisation, production,lead-time and other relevant factors.Changes in the method for calculatingindirect production costs, includingutilisation levels and production lead time inthe calculation of indirect production costs,could have an impact on the gross marginand the overall valuation of inventories.Deferred taxesManagement’s judgement is required indetermining the Group’s provision for incometaxes, deferred tax assets and liabilities whichcan be recognised. The Group recognisesdeferred tax assets if it is probable thatsufficient taxable income will be available inthe future, against which the temporarydifferences and unused tax losses can beutilised.Impairment of goodwill and otherintangible assetsThe group determines whether goodwill andother intangible assets, such as patents, rightsand development projects, are impaired atleast on an annual basis. This requires anestimation of the value in use of the overallbusiness and of some separate intangibleassets. Estimating the value in use requiresthe Group to make an estimate of theexpected future cash flows from the overallbusiness and other intangible assets and alsoto choose a suitable discount rate in order tocalculate the present value of those cash flows.Sales and revenue recognitionThe Group derives revenue from twoprimary revenue streams, namely productsales and the licensing of product rights.Sales represent the fair value of the saleof goods excluding value added tax and,after deduction of provisions for tradediscounts, allowances and returned products.Revenue from the sale of goods isrecognised when all the following specificconditions have been satisfied:• <strong>Nycomed</strong> has transferred to the buyerthe significant risk and rewards ofownership of goods.• <strong>Nycomed</strong> retains neither continuingmanagerial involvement to the degreeusually associated with ownership noreffective control over the goods sold.• The amount of revenue can be measuredreliably.• It is probable that the economic benefitassociated with the transaction will flowto <strong>Nycomed</strong>.• The costs incurred, or to be incurred, inrespect of the transaction can bemeasured reliably.These conditions are usually met by the timethe products are delivered to the customerwith regard to revenue from product sales.However, in the case of royalty incomerelated to the licensing of product rights,these conditions are usually met when royaltybecomes payable or on an accrual basis inaccordance with the substance of the relevantagreement. In certain circumstances, theGroup enters into long-term contracts thatprovide an upfront payment in lieu of futureroyalty payments. This payment is recordedas deferred revenue and recognised in incomeover the contractual period until payment isnon-refundable, based on the expectedunderlying product sales.Upfront payments are initially recognisedwhen research and development contractsare signed. Upfront payments that areattributable to subsequent research and/ordevelopment activities are recognised asdeferred revenue and will subsequently berecognised as revenue over the expectedcontract period. Non-refundable upfrontpayments that are not attributable tosubsequent research and/or developmentactivities are recognised as revenue when thecontracts are signed. Upfront fees inconnection with licensing agreements arerecognised as income over the period towhich they relate.Provisions for discounts, rebates to customersand customer returns are estimated andprovided for in the period when the relatedsales are recognised and reflected in net sales.Royalties are not disclosed separately fromother income since the amount is not materialto <strong>Nycomed</strong>.Research and development expensesResearch and development expenses compriseexpenses that relate to the Group’s researchand development functions, including wagesand salaries, depreciation and other overheads.Any milestone payments to third parties inrespect of research and development arerecognised in the income statement, or arecapitalised as appropriate, in the period inwhich the milestones are reached.Research expenses are charged to the incomestatement as incurred. Development expensesare capitalised if certain criteria are met andthey are likely to generate future economicbenefits.Company Profile | CEO letter | Management <strong>Report</strong> | products | Pipeline | Corporate Governance | Financial Statements | Contacts