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Notes to consolidated financial statements

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Notes to consolidated financial statements

    Notes to the Consolidated Financial Statements for the Year Ended 31 December 2009

    Instructions:

     This document contains general information and the application of the contents to specific cases will depend on particular circumstances. Deloitte does not provide accounting, investment, legal, tax or other professional advice or services through this document. This document is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect you or your business, you should consult your professional advisor. Deloitte accepts no responsibility for any losses sustained by any person as a result of placing reliance on the information presented in this document;

     This version is general and extensive, unnecessary parts may be omitted in specific cases; If the relevant disclosure section is not relevant for the Company, no comments need to be provided on this matter (e.g., the Company has no pledged assets) and the relevant section can be deleted;

     Text in bold + italics represents instructions;

     Slashes represent multiple options;

     Dots in the text represent space for filling in information;

     Most of the tables are linked to the financial statements, i.e., it is necessary to check whether data from the table agrees with the financial statements;

     It is necessary to modify the standard wording for a limited liability company, because the notes have been prepared primarily in respect of joint stock companies;

     If a table can be replaced with a note disclosure of the same informative value and the note disclosure is shorter, please delete the table and use the note disclosure; Comment on all material and non-recurring items;

     Remember to indicate the Company‟s name in the footer and to update the table of

     contents;

     If the Group used the profit and loss account structured by the function of expense/income method („ucelove cleneni‟), then the notes always need to include the profit and loss account structured by the nature of expense/income method („druhove cleneni‟).

    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

    FOR THE YEAR ENDED 31 DECEMBER 2009

    Name of the Parent Company: .......…………….......................

    Registered Office: ......................……………........

    Legal Status: Joint stock company/Limited liability company

    Corporate ID: ...................……………...........

     GROUP 1

Notes to the Consolidated Financial Statements for the Year Ended 31 December 2009

    TABLE OF CONTENTS

    1. GENERAL INFORMATION ....................................................................................................... 4 1.1. INCORPORATION AND DESCRIPTION OF THE CONSOLIDATING ENTITY (HEREINAFTER ALSO THE

    “PARENT COMPANY”) ...................................................................................................................... 4 1.2. YEAR-ON-YEAR CHANGES AND AMENDMENTS TO THE REGISTER OF COMPANIES .............................. 4 1.3. ORGANISATIONAL STRUCTURE OF THE PARENT COMPANY ................................................................ 4 2. DEFINITION OF THE CONSOLIDATION ENTITY (HEREINAFTER ALSO THE

    “GROUP”) ...................................................................................................................................................... 5 2.1. SUBSIDIARIES .................................................................................................................................. 5 2.2. SHARES IN ASSOCIATES ................................................................................................................... 6 2.3. JOINTLY CONTROLLED ENTITIES ...................................................................................................... 6 2.4. BOARD OF DIRECTORS AND SUPERVISORY BOARD OF THE PARENT COMPANY ................................... 6 3. BASIS OF ACCOUNTING AND GENERAL ACCOUNTING PRINCIPLES........................... 8 3.1. SCOPE OF CONSOLIDATION AND CONSOLIDATION METHOD ............................................................... 8 3.2. FULL CONSOLIDATION METHOD....................................................................................................... 9 3.2.1. Description of the Full Consolidation Method .............................................................................. 9 3.2.2. Stages of the Full Consolidation Method ...................................................................................... 9 3.3. CONSOLIDATION USING THE EQUITY METHOD OF ACCOUNTING ...................................................... 12 3.3.1. Description of Consolidation using the Equity Method of Accounting ......................................... 12 3.4. PROPORTIONATE CONSOLIDATION.................................................................................................. 13 3.4.1. Tangible Fixed Assets ................................................................................................................ 14 3.4.2. Intangible Fixed Assets .............................................................................................................. 15 3.4.3. Patents and Trademarks ............................................................................................................ 16 3.4.4. Goodwill ................................................................................................................................... 16 3.4.5. Non-Current Financial Assets .................................................................................................... 16 3.4.6. Current Financial Assets ........................................................................................................... 17 3.4.7. Derivative Financial Transactions ............................................................................................. 18 DERIVATIVE FINANCIAL TRANSACTIONS ...................................................................................................... 18 3.4.8. Inventory ................................................................................................................................... 21 3.4.9. Receivables ............................................................................................................................... 21 3.4.10. Trade Receivables ..................................................................................................................... 22 3.4.11. Loans ........................................................................................................................................ 22 3.4.12. Reserves .................................................................................................................................... 22 3.4.13. Foreign Currency Translation ................................................................................................... 22 3.4.14. Finance Leases .......................................................................................................................... 23 3.4.15. Taxation .................................................................................................................................... 24 3.4.16. Impairment ................................................................................................................................ 25 3.4.17. Borrowing Costs ........................................................................................................................ 25 3.4.18. Government Grants ................................................................................................................... 25 3.4.19. Revenue Recognition ................................................................................................................. 26 3.4.20. Use of Estimates ........................................................................................................................ 26 3.4.21. Extraordinary Expenses and Income .......................................................................................... 26 3.4.22. Year-on-Year Changes in Valuation, Depreciation or Accounting Policies ................................. 26 3.4.23. Other Matters ............................................................................................................................ 27 3.4.24. Cash Flow Statement ................................................................................................................. 27 4. ADDITIONAL INFORMATION ON THE CONSOLIDATED BALANCE SHEET AND

    PROFIT AND LOSS ACCOUNT................................................................................................................. 28 4.1. CONSOLIDATION ............................................................................................................................ 28 4.1.1. Proportionate Consolidation...................................................................................................... 28 4.1.2. Disposal of Subsidiary ............................................................................................................... 28 4.1.3. Acquisition of Subsidiary ........................................................................................................... 29 4.2. INTANGIBLE FIXED ASSETS ............................................................................................................ 29 4.2.1. Internally Generated Intangible Fixed Assets ............................................................................. 31 4.3. TANGIBLE FIXED ASSETS ............................................................................................................... 31 4.3.1. Fixed Assets Pledged as Security ............................................................................................... 34 4.3.2. Assets Held under Finance and Operating Leases ...................................................................... 34

     GROUP 2

Notes to the Consolidated Financial Statements for the Year Ended 31 December 2009

    4.4. ACCOUNTING FOR GOODWILL ARISING ON CONSOLIDATION ........................................................... 35 4.5. NON-CURRENT FINANCIAL ASSETS ................................................................................................ 35 4.5.1. Non-Current Securities and Equity Investments Available for Sale ............................................. 36 4.5.2. Other Debt Securities Held to Maturity (Foreign Currency) ....................................................... 36 4.5.3. Acquisition of Non-Current Financial Assets .............................................................................. 36 4.5.4. Non-Current Financial Assets Pledged as Security ..................................................................... 37 4.6. INVENTORY ................................................................................................................................... 37 4.7. LONG-TERM RECEIVABLES ............................................................................................................ 37 4.8. SHORT-TERM RECEIVABLES ........................................................................................................... 37 4.9. CURRENT FINANCIAL ASSETS......................................................................................................... 38 4.10. DEFERRED EXPENSES AND ACCRUED INCOME ................................................................................ 38 4.11. EQUITY ......................................................................................................................................... 38 4.11.1. Changes in Equity ..................................................................................................................... 39 4.11.2. Shares Issued during the Reporting Period................................................................................. 39 4.12. RESERVES ..................................................................................................................................... 39 4.13. LONG-TERM PAYABLES ................................................................................................................. 39 4.13.1. Collateralised Long-Term Payables or Otherwise Secured ......................................................... 40 4.14. SHORT-TERM PAYABLES................................................................................................................ 40 4.14.1. Aging of Short-Term Trade Payables ......................................................................................... 40 4.15. LOANS .......................................................................................................................................... 40 4.16. TEMPORARY LIABILITIES ............................................................................................................... 40 4.17. DERIVATIVE FINANCIAL INSTRUMENTS .......................................................................................... 41 4.18. INCOME TAXATION ........................................................................................................................ 41 4.18.1. Deferred Taxation ..................................................................................................................... 41 4.18.2. Income Tax Charge (Credit) ...................................................................................................... 42 5. ADDITIONAL INFORMATION ON THE CONSOLIDATED PROFIT AND LOSS

    ACCOUNT.................................................................................................................................................... 43 5.1. DETAILS OF INCOME BY PRINCIPAL SEGMENT ................................................................................. 43 5.2. PROFIT FROM OPERATING ACTIVITY BY PRINCIPAL SEGMENTS ........................................................ 43 5.3. CONSUMED PURCHASES ................................................................................................................. 43 5.4. SERVICES ...................................................................................................................................... 44 5.4.1. Aggregate Expenses for Remuneration to the Statutory Auditor/Audit Firm ................................ 44 5.5. DEPRECIATION OF INTANGIBLE AND TANGIBLE FIXED ASSETS ........................................................ 44 5.6. CHANGE IN RESERVES AND PROVISIONS RELATING TO OPERATING ACTIVITIES AND COMPLEX

    DEFERRED EXPENSES..................................................................................................................... 45 5.7. OTHER OPERATING INCOME ........................................................................................................... 45 5.8. OTHER OPERATING EXPENSES........................................................................................................ 45 5.9. PROCEEDS OF THE SALE OF SECURITIES AND INVESTMENTS, SECURITIES AND INVESTMENTS SOLD ... 45 5.10. INCOME FROM NON-CURRENT FINANCIAL ASSETS .......................................................................... 46 5.11. INCOME FROM CURRENT FINANCIAL ASSETS .................................................................................. 46 5.12. COSTS OF FINANCIAL ASSETS......................................................................................................... 46 5.13. INCOME FROM THE REVALUATION OF SECURITIES AND DERIVATIVES .............................................. 46 5.14. COSTS OF THE REVALUATION OF SECURITIES AND DERIVATIVES ..................................................... 46 5.15. CHANGE IN RESERVES AND PROVISIONS RELATING TO FINANCIAL ACTIVITIES ................................ 47 5.16. INTEREST INCOME ......................................................................................................................... 47 5.17. OTHER FINANCIAL INCOME ............................................................................................................ 47 5.18. OTHER FINANCIAL EXPENSES......................................................................................................... 47 5.19. TRANSFER OF FINANCIAL EXPENSES AND TRANSFER OF FINANCIAL INCOME.................................... 47 5.20. AGGREGATE RESEARCH AND DEVELOPMENT COSTS ....................................................................... 48 5.21. OFF-BALANCE SHEET TRANSACTIONS ............................................................................................ 48 6. EMPLOYEES, GROUP MANAGEMENT AND STATUTORY BODIES ............................... 49 6.1. STAFF COSTS AND NUMBER OF EMPLOYEES ................................................................................... 49 6.2. LOANS, BORROWINGS, AND OTHER BENEFITS PROVIDED ................................................................ 49 7. CONTINGENT LIABILITIES AND OFF BALANCE SHEET COMMITMENTS ................. 51 8. POST BALANCE SHEET EVENTS .......................................................................................... 53

     GROUP 3

Notes to the Consolidated Financial Statements for the Year Ended 31 December 2009

    1. GENERAL INFORMATION

    1.1. Incorporation and Description of the Consolidating Entity (hereinafter also the “Parent Company”)

    (Name of the parent company as indicated in the details held at the Register of Companies) was formed by a Deed of Association/Memorandum of

    Association/Founder’s Deed (in the case of one founder) as a joint stock

    company/limited liability company on ................ and was incorporated following its registration in the Register of Companies held by the Court in ................. on ............... The principal activities of the Parent Company are (Provide a list of principal

    activities.).

The Parent Company‟s registered office is located at (The registered office address as

    indicated in the details held at the Register of Companies, disclose the place of business if different from the registered office as stated in the Register of Companies.)

The Parent Company‟s issued share capital is CZK xxx.

    The consolidated financial statements have been prepared as of and for the year ended 2009.

    (Detail the individuals and legal entities with ownership interest in the Parent Company of 20 percent or greater and their ownership percentage, describe any changes or amendments made in the previous reporting period in the details held at the Register of Companies.)

Shareholder/Owner Ownership percentage

Other

    Total 100 %

    (Also give details of agreements, if any, put in place between the shareholders/owners, which establish voting rights regardless of the share of the Parent Company’s share

    capital - this relates to a shareholding in companies equal to or in excess of 20 percent.)

    1.2. Year-on-Year Changes and Amendments to the Register of Companies

    (Describe changes and amendments to the Register of Companies, such as a change of the registered office, a change of name, a change of the subject of operations, etc. In addition, disclose matters approved by the general meeting of shareholders, which have not as yet been recorded in the Register of Companies, indicate if the petition to have the details in the Register of Companies updated has been submitted.)

    1.3. Organisational Structure of the Parent Company

    (Describe the organisational structure and any significant changes in the structure made during the previous reporting period.)

     GROUP 4

Notes to the Consolidated Financial Statements for the Year Ended 31 December 2009

    2. DEFINITION OF THE CONSOLIDATION ENTITY (HEREINAFTER ALSO

    THE “GROUP”)

    Name Registered office Share in equity Dependence degree Consolidation

     (percentage) method

    Parent Company Registered office n/a n/a n/a

    Registered office Controlling Subsidiary 100 Full influence

    Registered office Controlling Subsidiary 56 Full influence

    Registered office Significant Associate 25 Equity influence

    Registered office Proportionate Joint venture consolidation

The Group does not include the following companies due to

    (Please state the reason for choosing the consolidation method in each entity.) (Please provide a list and the corporate name and registered office of the accounting entities not included in the Group and the reason for non-inclusion. )

Name Registered office Share in equity Reason for non-consolidation

     (percentage)

    Subsidiary Registered office 100

    Subsidiary Registered office 56

    Associate Registered office 25

    Financial statements of all companies, both consolidated and unconsolidated, are available in the registered office of the Parent Company Address.

    Consolidated financial statements of all companies, both consolidated and unconsolidated, are available in the registered office of the Parent Company Address.

Changes in the Composition of the Consolidation Group

    The consolidated Group has been recently extended to include subsidiaries XXX and

    XXX, and associates XXX and XXX as a result of yyyyyyyyy. When compared to the

    year ended 31 December 2008, the consolidated Group does not include the subsidiaries XXX and XXX and the associates XXX and XXX, due to yyyyyyyyyyyy (sale, no

    opportunity to obtain data etc. refer to the Consolidation Rules) and companies controlled in concert.

The balance sheet date of the companies included in the Group is 31 December 2009.

    (State the balance sheet date of entities included in the Group if it is different from the balance sheet date of the Parent Company.)

    2.1. Subsidiaries

    The following table summarises the information about subsidiaries as of 31 December 2009:

     GROUP 5

Notes to the Consolidated Financial Statements for the Year Ended 31 December 2009

    Name Place of incorporation Ownership interest Voting rights Principal activity

    (or registration) and percentage percentage

    operation

    (Please describe the principal activity of the subsidiary in the Principal activity column or use the space under the table to do so.)

    2.2. Shares in Associates

    (CZK thousand)

     31 Dec 2009 31 Dec 2008

    Investment costs

    Share in post-acquisition profit and dividends

    received and amortisation of goodwill on consolidation

    The following two tables summarise the information about the associates of the Group as of 31 December 2008:

    Place of incorporation Ownership Voting rights Principal activity Name (or registration) and interest

    operation

    (Please describe the principal activity of the associate in the Principal activity column or use the space under the table to do so.)

    2.3. Jointly Controlled Entities

    The Group has significant interests in the following jointly-controlled entities:

(Please describe the principal activity of joint ventures.)

    (If the Company is included in the Group, please state its specification.)

    2.4. Board of Directors and Supervisory Board of the Parent Company (Name the members of the Board of Directors and Supervisory Board, indicating their positions as of the balance sheet date.)

     Position Name

    Chairman Board of Directors

    Vice-chairman

    Member

    Chairman Supervisory Board

     Vice-chairman

     Member

    During the year ended 31 December 2009, the following changes were made to the composition of the Company‟s Board of Directors and Supervisory Board:

     GROUP 6

Notes to the Consolidated Financial Statements for the Year Ended 31 December 2009

    Board of Directors:

    Position Original member New member Date of change

    Supervisory Board:

    Position Original member New member Date of change

     GROUP 7

Notes to the Consolidated Financial Statements for the Year Ended 31 December 2009

    3. BASIS OF ACCOUNTING AND GENERAL ACCOUNTING PRINCIPLES

    The Company‟s accounting books and records are maintained and the financial statements were prepared in accordance with the Accounting Act 563/1991 Coll., as amended; the Regulation 500/2002 Coll. which provides implementation guidance on certain provisions of the Accounting Act for reporting entities that are businesses maintaining double-entry accounting records, as amended by the Regulation 472/2003 Coll. and the Regulation 397/2005 Coll.; and Czech Accounting Standards for Businesses.

    The accounting records are maintained in compliance with general accounting principles, specifically the historical cost valuation basis with certain exceptions as described in Note xxx, the accruals principle, the prudence concept and the going concern assumption.

In order to compile the consolidated financial statements of the … Group, the

    accounting principles applied by the Group companies were brought into conformity. Significant accounting policies adopted by individual Group companies are set out below.

    These consolidated financial statements are presented in thousands of Czech crowns („CZK‟).

    3.1. Scope of Consolidation and Consolidation Method

    Consolidation is performed using the direct consolidation method (or by each sub-group

    level) as appropriate. Direct consolidation involves consolidation of all accounting entities of the Group at once without using the consolidated financial statements or financial statements presented for consolidation sub-groups. Consolidation by levels means that financial statements for lower groupings are entered and form a part of the consolidated financial statements of higher groupings.

The Group consists of the Parent Company XXXXX, and its subsidiaries and associates.

    The definition of subsidiaries and associates is as follows:

Subsidiaries

     Investments in enterprises in which the Parent Company has the power to govern

    the financial and operating policies so as to obtain benefits from their operations are

    treated as „Equity investments in subsidiaries‟.

    For consolidation purposes, a subsidiary is a company where the Parent Company has a controlling influence through:

     The ownership of more than xx percent of shares/share capital interests; or Contracts entered into or stipulations in the Articles of Association or in the

    Memorandum of Association.

    These companies are consolidated using the full consolidation method.

     GROUP 8

Notes to the Consolidated Financial Statements for the Year Ended 31 December 2009

    Associates

     Investments in enterprises in which the Parent Company is in a position to exercise

    significant influence over their financial and operating policies so as to obtain

    benefits from their operations are treated as „Equity investments in associates‟.

    For consolidation purposes, an associate is a company where the Parent Company has significant influence, i.e.

     it holds more than 20 percent of shares/share capital interests and does not exercise

    controlling influence.

    These companies are consolidated using the equity method of accounting.

Jointly Controlled Entities

    Companies controlled jointly with another party or parties are consolidated using the proportionate consolidation method if these parties have an equal share in the share capital of the subsidiary.

    3.2. Full Consolidation Method

    3.2.1. Description of the Full Consolidation Method

    Full consolidation method involves:

    a) Inclusion, after possible reclassifications and adjustments, of each item of the

    balance sheet and profit and loss account of subsidiaries in the balance sheet and

    profit and loss account of the Parent Company;

    b) Elimination of accounting transactions between accounting entities of the Group

    which express mutual relations;

    c) Presentation of goodwill arising on consolidation, if any, and its amortisation; d) Allocation of equity of subsidiaries and their profit or loss among the equity interest

    attributable to the Parent Company and the equity interest attributable to minority

    holders of equity securities and equity interests issued by consolidated entities; e) Elimination of equity securities and equity interests issued by the subsidiary and the

    controlling entity and the equity of the controlling equity which relates to the

    eliminated equity securities and interests; and

    f) Settlement of interrelated equity interests.

    3.2.2. Stages of the Full Consolidation Method

    Reclassification of and adjustments to items of financial statements of the Parent Company and subsidiaries.

    The reclassification of the Parent Company‟s and subsidiaries‟ information will include items added to the consolidated balance sheet and consolidated profit and loss account and their substance.

     GROUP 9

Notes to the Consolidated Financial Statements for the Year Ended 31 December 2009

    The adjustments will be made following the valuation principles stated in the consolidation rules. These adjustments will only be made in subsidiaries whose valuation principles differ from the valuation principles set by consolidation rules and would have a material impact on the valuation of assets in the consolidated financial statements and the reported profit or loss.

    Financial statements of subsidiaries whose registered office is abroad and whose accounting records are denominated in a foreign currency are translated using the exchange rate ruling at the consolidated balance sheet date.

Adjustments to the asset and liability valuation of subsidiaries.

    If there is a significant difference between the valuation of assets and liabilities in the accounting records of subsidiaries and the fair value, the valuation is adjusted to the fair value of assets and liabilities as of the acquisition date or as of the date when the interest in the share capital was increased. The relevant assets and liabilities of the subsidiary are included in the consolidated financial statements at the revalued amounts.

    If the valuation of assets and liabilities is adjusted as stated above in Note XXX, adjustments reflecting differences arising from transactions made after the acquisition date or the date when the interest in the share capital was increased are made. These adjustments result from the inclusion of the assets or settlement of the liabilities charged or credited to the profit or loss of the subsidiary at the valuation of these items as carried in the accounting records of the subsidiary and these transactions stated pursuant to the revalued amounts of the relevant assets and liabilities for consolidation purposes.

    Adding the financial statements data of the Parent Company and subsidiaries.

    The Parent Company adds reclassified and adjusted information from its financial statements to reclassified and adjusted information from the financial statements of its subsidiaries.

    Elimination of mutual transactions between the Parent Company and its subsidiaries.

Elimination of transactions which do not influence profit or loss.

    Mutual intercompany receivables and payables and expenses and income which have a material impact on assets, liabilities and profit or loss items in the consolidated financial statements are fully eliminated.

    Elimination of transactions which influence profit or loss.

    Upon the preparation of the consolidated balance sheet and the consolidated profit and loss account, mutual transactions between the Parent Company and subsidiaries or between subsidiaries which have a material impact on the profit or loss of the Group are eliminated, among others, in the following cases:

a) Intercompany sales and purchases of inventory;

    b) Intercompany sales and purchases of fixed assets; and

    c) Dividends received and declared and shares in profit within the Group.

     GROUP 10

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