Annual Report 2011 - Kongsberg Maritime - Kongsberg Gruppen

2 INTRODUCTION
7 DIRECTORS’ REPORT AND
18 FINANCIAL STATEMENTS
64 CORPORATE GOVERNANCE
76 FINANCIAL CALENDAR AND ADDRESSES
24
KONGSBERG Annual Report 2011
The amount recognised is measured as the fair value of the consideration
or receivable. Services that are delivered but are not part of a
construction contract or licensed sales are recognised as revenue
incrementally as the service is provided, as described under “construction
contracts/system deliveries”.
License revenues
The Group also sells licenses for the use of software systems. License
revenues are normally recognised on a systematic manner on an accrual
basis, which is usually when the system is delivered to the buyer. The
date of delivery is defined as the date on which the risk and rewards are
transferred to the customer. If the sale of the license depends on
cus tomer acceptance, license revenues will not be recognised until the
customer has accepted. In cases that involve adaptations or additional
work, the total contract amount, including consideration for the licenses,
is recognised as revenue at the same stage of completion as deliveries,
as described under “construction contracts/system deliveries”.
Main tenance and service/support are recognised as revenue incrementally
as the service is performed or on a straight-line basis during the
period in which the service is performed.
Combined deliveries of goods, services and license sales
The recognition criteria are applied separately for each transaction.
When combined deliveries with different recognition criteria, the various
elements are identified and recognised as income separately. Regarding
sale of goods with accompanying maintenance services, the goods are
recognised as income upon delivery, while the maintenance services are
recognised as deferred income and recognised as income over the
period in which the service is performed.
When market prices can be obtained for the various elements to be
delivered, the income is based on these prices and the stipulated price
of the license will be recognised upon delivery. For service and main tenance,
the stipulated price of the service will be deferred and recognised
on a straight-line basis over the period in which service and
maintenance are performed.
Upon the sale of different elements where no market prices can be
obtained, KONGSBERG has the following principles for recognition and
measurement of income:
• Identification of the various elements for delivery, e.g. license, service,
maintenance and consultancy services
• Projected costs are estimated for each element, e.g. service,
maintenance and consultancy services. Further, a reasonable profit
margin is estimated on the various elements.
• The method and the assumptions for estimation must be consistent
from one period to the next
• The estimated cost plus the profit margin will be deferred income and
recognised on a straight-line basis throughout the period in which the
services are performed
• The contract amount, less estimated income from the abovementioned
elements, is estimated as license income and recognised upon
delivery
D) Taxes
Current income tax in the financial statements includes tax payable and
the change in deferred tax for the period. Assets and liabilities associated
with deferred tax are calculated using the liability method. Deferred
tax is calculated on net tax-increasing temporary differences between
the values used for accounting purposes and those used for taxation
purposes, adjusted for deductible temporary tax-reducing differences
and tax losses carried forward if this satisfies the requirements in IAS
12.71.
Income from long-term construction contracts where KONGSBERG
is responsible for performance is not recognised for tax purposes until
the risk and reward has been transferred to the customer. Due to
KONGSBERG’s volume of large, long-term contracts, there are considerable
temporary differences.
Deferred tax assets are only recognised to the extent that it is
probable that taxable profit will be available against which the deductible
temporary differences, and the carry forward of unused tax credits and
unused tax losses can be utilised. Deferred tax assets are assessed for
each period and will be reversed if it is no longer probable that the
deferred tax asset will be utilised.
E) Financial income and financial expenses
Financial income compromises interest income, dividends, foreign currency
gains, changes in value of assets to fair value through the profit
and loss, and gains on disposals of available-for-sale assets where the
changes in value are recognised as other income and expenses in other
comprehensive income (OCI). Interest income is recognised as it
ac crues using the effective interest method, while dividends are
recognised on the date on which the annual general meeting approves
the dividend.
Financial expenses compromise interest expenses, foreign currency
losses, impairments on available-for-sale shares, changes in the value of
assets to fair value through profit and loss, and losses on sale of assets
available for sale where changes in value are recognised directly in the
statement of comprehensive income. Interest expenses are recognised
gradually as they accrue using the effective interest method.
F) Intangible assets
Goodwill
Goodwill arises in acquisition of a business (business combination) and
is not depreciated. Goodwill is recognised in the statement of financial
position at cost less any accumulated impairment losses. Goodwill does
not generate cash flows independent of other assets or groups of
assets and is allocated to the cash-generating units that are expected
to gain financial benefits from the synergies that arise from the business
combination from which the goodwill is derived. Cash-generating units
that are allocated goodwill are tested for impairment annually at the end
of the year, or more frequently if indication of impairment.
Goodwill is tested for impairment by estimating the recoverable
amount for the individual cash-generating unit or group of cash-
generating units that are allocated goodwill and followed up by management.
The group of cash generating units is in any case no larger than
an operating segment as defined by IFRS 8 Operating segments.
Impairment is calculated by comparing the recoverable amount with
the individual cash-generating unit’s carrying amount. The recoverable
amount is the higher of value in use or net realisable value. The Group
uses the value in use to determine the recoverable amount of the
cash-generating units. In determining the value in use, the expected
future cash flows are discounted to net present value using a discount
rate before tax that reflects the market’s target for a return on investments
for the cash-generating unit in question. If the value in use of
the cash-generating unit is less than the carrying amount, impairment
reduces the carrying value of goodwill and then the carrying value of
the unit’s other assets on a pro rata basis, based on the carrying value
of the individual assets. Impairment on goodwill is not reversed in a
subsequent reporting period even if the recoverable amount of the
cash-generating unit increases. Any impairment will be recognised
through profit and loss in the financial statements. Impairment testing
of goodwill is described in Note 12 “Impairment test of goodwill “.
See also description 3 I) “Summary of significant accounting policies
– Impairment of non-financial assets”.
Development
Expenses related to development activities, including projects in the
development phase, are recognised in the balance sheet if the development
activities or project meet the defined criteria for capitalisation.
Development comprises activities related to planning or designing the
production of new or significantly improved materials, devices, products,
processes, systems or services before the start of commercial production
or use. In the assessment of whether a project constitutes the
development of a new system, functionality or module, what is being
developed must be able to operate independently of existing systems/
products that are sold. KONGSBERG has considered the criteria for
significant improvements to be an increase of more than 20 per cent in
value from before development or in relation to the replacement cost of
the system. The capitalisation of development costs requires that those
costs can be measured reliably, that the product or process is technically
and commercially feasible, that future financial benefits are probable and
that KONGSBERG intends to and has sufficient resources to complete
development, and to use or sell the asset. Other development costs are
expensed as they are incurred.
When the criteria for balance sheet recognition are met, accrued
expenses are recognised on the balance sheet. Costs include the cost