Open Joint Stock Company Gazprom

OAO GAZPROMNOTES TO THE IAS CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In millions of Russian Roubles in terms of the equivalent purchasing power of the Rouble at31 December 2001, except as noted)4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—(Continued)Associated undertakingsAssociated undertakings are undertakings over which the Group has significant influence, butwhich it does not control. Provisions are recorded for long-term impairment in value. Associatedundertakings are accounted for using the equity method.Equity accounting involves recognising in the income statement the Group's share of theassociated undertakings' profit or loss for the year. The Group's interest in the associate is carried in thebalance sheet at an amount that reflects its share of the net assets of the associate and includesgoodwill on the acquisition.Mutual cancellation and barter transactionsA significant portion of accounts receivable arising from sales are settled either through a chainof non-cash transactions (mutual cancellations), sometimes involving several enterprises, or, to a lesserextent, through direct settlement by goods from the final customer (barter). A portion of operations,including capital expenditures, is transacted by mutual cancellations or barter. Such transactions areexcluded from investing and financing activities in the consolidated statement of cash flows. Net cashreceived from operating activities in the consolidated statement of cash flow also represents actual cashflow transactions. However, individual items within operating activities are stated inclusive of both cashand non-cash transactions due to the significance of non-cash transactions in the form of barter andmutual-cancellation offsets. Management believes the costs which would be required to be expendedto determine such information would outweigh the benefits of having such information.Receivables and payables that are expected to be settled by mutual settlements, barter or othernon-cash settlements, are recognised based on management's estimate of the fair value to be receivedor given up. Approximately, 22% and 40% of accounts receivable from gas sales settled during the yearsended 31 December 2000 and 1999, respectively, were settled in this manner.Deferred taxDeferred tax assets and liabilities are calculated in respect of temporary differences using abalance sheet liability method for financial reporting and accounting for deferred income taxes. Deferredtax is recorded for all temporary differences arising between the tax basis of assets and liabilities andtheir carrying values for financial reporting purposes. A deferred tax asset is recorded only to the extentthat it is probable that taxable profit will be available against which the deductible temporary differencescan be utilised. Deferred tax assets and liabilities are measured at tax rates that are expected to applyto the period when the asset is realised or the liability is settled, based on tax rates that have beenenacted or substantively enacted at the balance sheet date.Foreign currenciesThe balance sheets of foreign subsidiaries and associated undertakings and the monetary assetsand liabilities which are held by the Group and denominated in foreign currencies at the year end aretranslated into Roubles at the exchange rates prevailing at the year end. Exchange differences arisingon the retranslation of the net assets of foreign subsidiaries and associated undertakings arerecognised as translation differences and included in shareholders' equity. Statements of operations offoreign entities are translated at average exchange rates for the year.F-10