GROUPUseful life, depreciation and residual valueAll decomposed items are depreciated on a straight-line basis over the useful life of the separate item.Depreciation is based on cost less the estimated residual value. The residual value of the vessels is estimatedas the lightweight tonnage of each vessel multiplied by scrap value per ton. The residual values of docking,coating and major improvements are estimated to nil. The residual values, useful lives and methods arereviewed, and adjusted if appropriate, at each financial year-end.Impairment of non-financial assetsAt each reporting date the Company assesses whether there is an indication that an asset may be impaired. Ifany such indication exists, or when annual impairment testing for an asset is required, the Company makes anestimate of the asset’s recoverable amount. The recoverable amount is the highest of the fair market value ofthe asset, less cost to sell, and the net present value (NPV) of future estimated cash flow from the employmentof the asset (“value in use”). The NPV is based on a discount rate according to a weighted average cost ofcapital (“WACC”) reflecting the Company’s required rate of return. The WACC is calculated based on theexpected long-term borrowing rate and a risk free rate plus a risk premium for the equity. If the recoverableamount is lower than the book value, an impairment charge is recorded. Impairment losses are recognized inthe profit and loss statement. Assets are grouped at the lowest level where there are separately identifiableindependent cash flows. We have made the following assumptions when calculating the value in use formaterial tangible assets:Future cash flows are based on an assessment of our expected time charter earning and estimated level ofoperating expenses for each type of vessel over the remaining useful life of the vessel. As the Eitzen Chemicalvessels are interchangeable and the regional chemical tankers are integrated with the deep sea chemicaltankers through a logistical system, all chemical tankers are seen together as a portfolio of vessels. In additionthe pool of officers and crew are used throughout the fleet. Eitzen Chemical has a strategy of a total crewcomposition and how the crew is dedicated to the individual vessels varies. As a consequence, vessels will onlybe impaired if the total value of the fleet of vessels based on future estimated cash flows is lower than thetotal book value.An impairment loss recognised in prior periods for an asset is reversed if, and only if, there has been a changein the estimates used to determine the asset’s recoverable amount since the last impairment loss wasrecognised.DerecognitionComponents of vessels are derecognised upon disposal or when no future economic benefits are expectedfrom its use or disposal. Any gain or loss arising on derecognition of an asset is included in the incomestatement in the year it is derecognised.LeasesThe determination of whether an arrangement is, or contains a lease is based on the substance of thearrangement at inception date. Leases are classified as finance leases if the terms of the lease agreementtransfers substantially all the risks and rewards incidental to ownership of an asset. All other leases areclassified as operating lease.Finance leases are capitalised at inception of the lease at the fair value of the leased vessel or, if lower, at thepresent value of the minimum lease payments. The corresponding lease obligation is recognised as a liability inthe balance sheet. Lease payments are split between interest cost and reduction of the lease liability. Interestcost is recognized in the income statement.Finance leased assets are depreciated over the shorter of the estimated useful life of the asset and the leaseterm. For operating leases, the payments (time-charter hire or bare boat hire) are recognised as an expense ona straight line basis over the term for the lease.30
GROUPForeign currency translationFunctional currencyEach entity in Eitzen Chemical determines its own functional currency, and items included in the financialstatements of each entity are measured using their functional currency. The functional currency is thecurrency of the primary economic environment in which the entity operates. The consolidated financialstatements are presented in US Dollars which is the group’s presentation currency.Transactions and balance sheet itemsTransactions in foreign currencies are recorded in the functional currency rate at the date of the transaction.Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currencyrate of exchange prevailing at the balance sheet date. All differences are recognized in the income statement.Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using theexchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in aforeign currency are translated using the exchange rates at the date when the fair value is determined.Subsidiary companies in foreign currencyFor foreign operations with functional currency other than the presentation currency of Eitzen Chemical (USD),balance sheet items are translated into USD at the rate of exchange at the balance sheet date, and incomestatements are translated at the weighted average exchange rate for the year. The exchange differencesarising on the translation are recorded directly as other comprehensive income. On disposal of a foreign entity,the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognisedin the income statement.Financial assetsFinancial assets are classified as either financial assets at fair value through profit or loss, loans and receivablesor available-for-sale financial assets. Financial assets classified at fair value through profit and loss are initiallyrecognised at fair value. Other financial assets are initially recognised based on fair value plus directlyattributable transaction costs. Eitzen Chemical determines the classification of its financial assets after initialrecognition and, where allowed and appropriate, revaluates this designation at each financial year end. Allpurchases and sales of financial assets are recognised at the trade date i.e. the date that Eitzen Chemicalcommits to purchase the asset. Purchases or sales; are purchases or sales of financial assets that requiredelivery of assets within the period generally established by regulation or convention in the market place.Fair valueFair value of assets that are actively traded in organised markets is determined by reference to quoted marketbid prices at the close of business on the balance sheet date. For investments where there is no active market,fair value is determined using valuation techniques. Such techniques include using recent arm’s length markettransactions with reference to the current market value of other similar instruments, discounted cash flowanalysis or other valuation models.From time to time the Company may enter into financial instruments in order to hedge a portion of itsexposure to bunker prices. Fair value changes of the financial instruments are recognized through profit andloss under other financial items.Amortised costLoans and receivables are measured at amortised cost and are computed using the effective interest methodless any allowance for impairment. The calculation considers any premium or discount on acquisition andincludes transaction cost and fees that are an integral part of the effective interest rate.Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are notquoted in an active market. They arise when Eitzen Chemical provides money, goods or services directly to adebtor with no intention of trading the receivables.31
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