AstraZeneca Annual Report and Form 20-F Information 2011

Financial StatementsProperty, plant and equipmentThe Group’s policy is to write off the difference between the cost ofeach item of property, plant and equipment and its residual valuesystematically over its estimated useful life. Assets under constructionare not depreciated.Reviews are made annually of the estimated remaining lives andresidual values of individual productive assets, taking account ofcommercial and technological obsolescence as well as normal wearand tear. Under this policy it becomes impractical to calculate averageasset lives exactly. However, the total lives range from approximately10 to 50 years for buildings, and three to 13 years for plant andequipment. All items of property, plant and equipment are tested forimpairment when there are indications that the carrying value maynot be recoverable. Any impairment losses are recognised immediatelyin profit.Borrowing costsThe Group has no borrowing costs with respect to the acquisitionor construction of qualifying assets. All other borrowing costs arerecognised in profit as incurred and in accordance with the effectiveinterest rate method.LeasesRentals under operating leases are charged to profit on a straightlinebasis.SubsidiariesA subsidiary is an entity controlled, directly or indirectly, byAstraZeneca PLC. Control is regarded as the power to govern thefinancial and operating policies of the entity so as to obtain benefitsfrom its activities.The financial results of subsidiaries are consolidated from the datecontrol is obtained until the date that control ceases.InventoriesInventories are stated at the lower of cost and net realisable value.The first in, first out or an average method of valuation is used. Forfinished goods and work in progress, cost includes directly attributablecosts and certain overhead expenses (including depreciation). Sellingexpenses and certain other overhead expenses (principally centraladministration costs) are excluded. Net realisable value is determinedas estimated selling price less all estimated costs of completion andcosts to be incurred in selling and distribution.Write-downs of inventory occur in the general course of business andare recognised in cost of sales.Trade and other receivablesFinancial assets included in trade and other receivables are recognisedinitially at fair value. Subsequent to initial recognition they are measuredat amortised cost using the effective interest rate method, less anyimpairment losses.Trade and other payablesFinancial liabilities included in trade and other payables are recognisedinitially at fair value. Subsequent to initial recognition they are measuredat amortised cost using the effective interest rate method.Financial instrumentsThe Group’s financial instruments include interests in leases and rightsand obligations under employee benefit plans which are dealt with inspecific accounting policies.The Group’s other financial instruments include:> > Cash and cash equivalents> > Fixed deposits> > Other investments> > Bank and other borrowings> > Derivatives> > Trade receivables and trade payables.Cash and cash equivalentsCash and cash equivalents comprise cash in hand, current balanceswith banks and similar institutions and highly liquid investments withmaturities of three months or less when acquired. They are readilyconvertible into known amounts of cash and are held at amortised cost.Fixed depositsFixed deposits, comprising principally funds held with banks and otherfinancial institutions, are initially measured at fair value, plus directtransaction costs, and are subsequently remeasured to amortisedcost using the effective interest rate method at each reporting date.Changes in carrying value are recognised in profit.Other investmentsWhere investments have been classified as held for trading, they aremeasured initially at fair value and subsequently remeasured to fair valueat each reporting date. Changes in fair value are recognised in profit.In all other circumstances, the investments are classified as ‘availablefor sale’, are initially measured at fair value (including direct transactioncosts) and are subsequently remeasured to fair value at each reportingdate. Changes in carrying value due to changes in exchange rates onmonetary available for sale investments or impairments are recognisedin profit. All other changes in fair value are recognised in othercomprehensive income.Impairments are recorded in profit when there is a decline in thevalue of an investment that is deemed to be other than temporary.On disposal of the investment, the cumulative amount recognisedin other comprehensive income is recognised in profit as part of thegain or loss on disposal.Bank and other borrowingsThe Group uses derivatives, principally interest rate swaps, to hedgethe interest rate exposure inherent in a portion of its fixed interest ratedebt. In such cases the Group will either designate the debt as fairvalue through profit or loss when certain criteria are met or as thehedged item under a fair value hedge.If the debt instrument is designated as fair value through profit or loss,the debt is initially measured at fair value (with direct transaction costsbeing included in profit as an expense) and is remeasured to fair valueat each reporting date with changes in carrying value being recognisedin profit (along with changes in the fair value of the related derivative).Such a designation has been made where this significantly reducesan accounting mismatch which would result from recognising gainsand losses on different bases.If the debt is designated as the hedged item under a fair value hedge,the debt is initially measured at fair value (with direct transaction costsbeing amortised over the life of the bonds), and is remeasured for fairvalue changes in respect of the hedged risk at each reporting datewith changes in carrying value being recognised in profit (along withchanges in the fair value of the related derivative).If certain criteria are met, non-US dollar denominated loans aredesignated as net investment hedges of foreign operations. Exchangedifferences arising on retranslation of net investments, and of foreigncurrency loans which are designated in an effective net investmenthedge relationship, are recognised in other comprehensive income.All other exchange differences giving rise to changes in the carryingvalue of foreign currency loans and overdrafts are recognised in profit.148 Financial StatementsAstraZeneca Annual Report and Form 20-F Information 2011