116770 Project Obelix Pt1.qxp - Carlsberg Group

Carlsberg Breweries GroupOn initial recognition, transactions denominated in foreign currencies are translated to the functional currency at the exchangerates at the transaction date. Foreign exchange differences arising between the exchange rates at the transaction date and atthe date of payment are recognised in the income statement as financial income or financial expenses.Receivables, payables and other monetary items denominated in foreign currencies are translated at the exchange rates at thebalance sheet date. The difference between the exchange rates at the balance sheet date and at the date at which thereceivable or payable arose or the exchange rate in the latest Consolidated Financial Statements is recognised in the incomestatement as financial income or financial expenses.On recognition in the consolidated financial statements of entities with a functional currency other than the presentationcurrency of Carlsberg Breweries A/S (DKK), the income statements and cash flow statements are translated at the exchangerates at the transaction date and the balance sheet items are translated at the exchange rates at the balance sheet date. Anaverage exchange rate for the month is used as the exchange rate at the transaction date to the extent that this does notsignificantly deviate from the exchange rate at the transaction date. Foreign exchange differences arising on translation of theopening balance of equity of foreign entities at the exchange rates at the balance sheet date and on translation of the incomestatements from the exchange rates at the transaction date to the exchange rates at the balance sheet date are recogniseddirectly in equity under a separate translation reserve.Foreign exchange adjustment of balances with foreign entities which are considered part of the investment in the entity arerecognised in the consolidated financial statements directly in equity if the balance is denominated in the functional currency ofthe Parent Company or the foreign entity. Correspondingly, foreign exchange gains and losses on the part of loans andderivative financial instruments which are designated as hedges of investments in foreign entities with a functional currencydifferent from Carlsberg Breweries A/S' and which effectively hedge against corresponding foreign exchange gains and losseson the investment in the entity are also recognised directly in a separate translation reserve in equity.On recognition in the consolidated financial statements of associates with a functional currency other than the presentationcurrency of Carlsberg Breweries A/S, the share of profit/loss for the year is translated at average exchange rates and the shareof equity, including goodwill, is translated at the exchange rates at the balance sheet date. Foreign exchange differences arisingon the translation of the share of the opening balance of equity of foreign associates at the exchange rates at the balance sheetdate, and on translation of the share of profit/loss for the year from average exchange rates to the exchange rates at thebalance sheet date, are recognised directly in a separate translation reserve in equity.On complete or partial disposal of a foreign entity or on repayment of balances which constitute part of the net investment in theforeign entity, the share of the cumulative amount of the exchange differences recognised directly in equity relating to thatforeign entity is recognised in the income statement when the gain or loss on disposal is recognised.Prior to translation of the financial statements of foreign entities in countries with hyperinflation, the financial statements(including comparative figures) are inflation-adjusted for changes in purchasing power in the local currency. Inflation adjustmentis based on relevant price indexes at the balance sheet date.Derivative financial instruments. Derivative financial instruments are recognised in the balance sheet at fair value on thetransaction date.The fair values of derivative financial instruments are included in other receivables and other payables respectively and set-offof positive and negative values is only made when the Company has the right and the intention to settle several financialinstruments net. Fair values of derivative financial instruments are computed on the basis of current market data and generallyaccepted valuation methods.Changes in the fair value of derivative financial instruments designated as and qualifying for recognition as a fair value hedge ofrecognised assets and liabilities are recognised in the income statement together with changes in the value of the hedged assetor liability with respect to the hedged portion. Hedging of future cash flows according to agreement, except for foreign currencyhedges, is treated as a fair value hedge of a recognised asset or liability.Changes in the portion of the fair value of derivative financial instruments designated as and qualifying as a cash flow hedgeand which effectively hedge changes in the value of the hedged item are recognised in equity. If the hedged transaction resultsin gains or losses, amounts previously recognised in equity are transferred to the same item as the hedged item. Gains orlosses from hedges of proceeds from future borrowings are, however, transferred from equity over the term of the loan.Derivatives designated as and qualifying for recognition as a cash flow hedge of financial investments are recognised in equity.On complete or partial disposal of the financial investment, the portion of the hedging instrument that is recognised in equity andrelates to that financial investment is recognised in the income statement when the gain or loss on disposal is recognised.F-75