Investor Presentaiton

108 A.P. Moller-Maersk Annual Report 2020 Financials Consolidated financial statements Notes index Amounts in USD million = Note 23 Significant accounting policies - continued For container terminals operated under certain restrictive price and service conditions, etc., concessional rights to collect usage charges are included under intangible assets. The cost includes the present value of minimum payments under concession agreements and the cost of property, plant and equipment constructed on behalf of a grantor of a concession. The rights are amortised from the com- mencement of operations over the concession period. Property, plant and equipment are valued at cost less ac- cumulated depreciation and impairment losses. Deprecia- tion is charged to the income statement on a straight-line basis over the useful lives at an estimated residual value. The useful lives of new assets are typically as follows: Ships, etc. 20-25 years Containers, etc. Buildings 12 years 10-50 years Terminal infrastructure Plant and machinery, cranes and other terminal equipment Other operating equipment, fixtures, etc. 10-20 years or concession period, if shorter 5-20 years 3-7 years Estimated useful lives and residual values are reassessed on a regular basis. The cost of an asset is divided into separate components, which are depreciated separately if the useful lives of the individual components differ. Dry-docking costs are recog- nised in the carrying amount of ships when incurred and depreciated over the period until the next dry-docking. The cost of assets constructed by A.P. Moller-Maersk includes directly attributable expenses. For assets with a long construction period, borrowing costs during the construction period from specific as well as general borrowings are attributed to cost. In addition, the cost includes the net present value of estimated costs of re- moval and restoration. Right-of-use assets: The Group mainly leases vessels, con- tainers, concessions arrangements and real estate prop- erty. Lease contracts for vessels and containers are typ- ically made for fixed periods of about five years but may have extension options as described below. Concession arrangements and real estate contracts are negotiated on an individual basis and contain a wide range of terms and conditions. Leases are recognised as a right-of-use asset with a cor- responding leases liability at the date on which the leased asset is available for use by the Group. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. Intercompany leases will continue to be presented ac- cording to IFRS 8 - Segment Reporting, as operating leases in accordance with the old lease standard, IAS 17. Impairment losses are recognised when the carrying amount of an asset or a cash-generating unit exceeds the higher of the estimated value in use and fair value less costs of disposal. Goodwill is attributed to cash-generat- ing units on acquisition and impaired before other assets. Intangible assets and property, plant and equipment are tested for impairment if there is an indication of impair- ment. However, annual impairment tests are carried out for goodwill and other intangible assets with indefinite useful lives as well as intangible assets that are not yet in use. Assets are held for sale, when the carrying amount of an individual non-current asset, or disposal groups, will be re- covered principally through a sale transaction rather than through continuing use. Assets are classified as held for sale when activities to carry out a sale have been initiated, when the activities are available for immediate sale in their present condition, and when the activities are expected to be disposed of within 12 months. Liabilities directly asso- ciated with assets held for sale are presented separately from other liabilities. Assets held for sale are measured at the lower of car- rying amount immediately before classification as held for sale and fair value less costs to sell, and impairment tests are performed immediately before classification as held for sale. Non-current assets are not depreciated or amortised while classified as held for sale. Measure- ment of deferred tax and financial assets and liabilities is unchanged. Investments in associated companies and joint ventures are recognised as A.P. Moller - Maersk's share of the equity value inclusive of goodwill less any impairment losses. Goodwill is an integral part of the value of associated companies and joint ventures and is therefore subject to an impairment test together with the investment as a whole. Impairment losses are reversed to the extent the original value is considered recoverable. Equity instruments, etc., including shares, bonds and sim- ilar securities, are recognised on the trading date at fair value, and subsequently measured at the quoted market price for listed securities and at estimated fair value for non-listed securities. Fair value adjustments from equity investments at fair value through other comprehensive income (FVOCI) remain in equity upon disposal. Dividends are recognised in the income statement. Inventories mainly consist of bunker, containers (manu- facturing), spare parts not qualifying for property, plant and equipment, and other consumables. Inventories are measured at cost, primarily according to the FIFO method. The cost of finished goods and work in progress includes direct and indirect production costs. Loans and receivables are initially recognised at fair value, plus any direct transaction costs, and subsequently measured at amortised cost using the effective interest method. For loans and other receivables, write-down is made for anticipated losses based on specific individual or group assessments. For trade receivables, the loss al- lowance is measured in accordance with IFRS 9 applying a provision matrix to calculate the minimum impairment. The provision matrix includes an impairment for non-due receivables. Equity includes total comprehensive income for the year comprising the profit/loss for the year and other com- prehensive income. Proceeds on the purchase and sale of own shares and dividend from such shares are recognised in equity. The translation reserve comprises A.P. Moller-Maersk's share of accumulated exchange rate differences arising on translation from functional currency into presentation currency. The reserve for other equity investments com- prises accumulated changes in the fair value of equity investments (at FVOCI), net of tax. Reserve for hedges includes the accumulated fair value of derivatives qualify- ing for cash flow hedge accounting, net of tax, as well as forward points and currency basis spread. Equity-settled restricted shares and share options allocated to the executive employees of A.P. Moller - Maersk as part of A.P. Moller Maersk's long-term incentive programme are recognised as staff costs over the vesting period at estimated fair value at the grant date and a corresponding adjustment in equity. Cash-settled performance awards allocated to employees below executive levels as part of A.P. Moller Maersk's long-term incentive programme are recognised as staff costs over the vesting period and a corresponding adjustment in other payables. At the end of each reporting period, A.P. Moller - Maersk revises its estimates of the number of awards that are expected to vest based on the non-market vesting condi- tions and service conditions. Any impact of the revision is recognised in the income statement with a corresponding adjustment to equity and other payables. Provisions are recognised when A.P. Moller - Maersk has a present legal or constructive obligation from past events. The item includes, among other things, legal disputes, provisions for onerous contracts, unfavourable contracts acquired as part of a business combination, as well as provisions for incurred, but not yet reported, incidents under certain insurance programmes, primarily in the US. Provisions are recognised based on best estimates, and are discounted where the time element is significant and where the time of settlement is reasonably determinable. Pension obligations are the net liabilities of defined ben- efit obligations and the dedicated assets adjusted for