EL DOMINIO DE SI MISMO

discontinue hedge accounting prospectively. In the event

a fair value hedge relationship is terminated, amortization of fair value hedge adjustments is included in financing income and expense. When a cash flow hedge relationship is terminated, the fair value changes deferred in other comprehensive income (in equity) are released to the statement of income only when the hedged transaction is no longer expected to occur. Otherwise these will be released to the statement of income at the same time as the hedged item.

Associates and joint ventures (Note 11)

Associates are those entities in which we have significant influence, but no control, over the financial and operational policies. Joint ventures are those entities over whose activities we have joint control, established by contractual agreement and requiring unanimous consent for strategic, financial and operating decisions.

Associates and joint ventures are accounted for using the equity method and are initially recognized at cost. The consolidated financial statements include our share of the income and expenses of the associates and joint ventures for the period that we have significant influence or joint control, whereby the result is determined using our accounting principles. When the share of losses exceeds the interest in the investee, the carrying amount is reduced to nil and recognition of further losses is discontinued, unless we have incurred legal or constructive obligations on behalf of the investee. Loans to associates and joint ventures are carried at amortized cost less impairment losses.

The results from associates and joint ventures consist of our share in the results of these companies, interest on loans granted to them and the transaction results on divestments of associates and joint ventures. Unrealized gains and losses arising from transactions with associates and joint ventures are eliminated to the extent of our interest in the investee.

Other financial non-current assets (Note 12)

Loans and receivables are measured at amortized cost using the effective interest method, less any impairment

losses. Long-term receivables are discounted to their net present value. Interest receivable is included in financing income.

Trade and other receivables (Note 14)

Trade and other receivables are measured at amortized cost, using the effective interest method, less any impairment loss. An allowance for impairment of trade and other receivables is established if the collection of a receivable becomes doubtful.

Such receivable becomes doubtful when there is objective evidence that we will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the receivable is impaired. The amount of the allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. An impairment loss is recognized in the statement of income, as are subsequent recoveries of previous impairments.

Cash and cash equivalents (Note 15)

Cash and cash equivalents include all cash balances and short-term highly liquid investments that are directly convertible into cash. Cash and cash equivalents are measured at fair value.

Long-term and short-term borrowings (Notes 18, 19, 24)

Long-term borrowings are measured at amortized cost, applying the effective interest rate method unless fair value interest rate hedging is applied. In that case the carrying amount is adjusted for the fair value changes caused by the hedged risk. Short-term borrowings are measured at amortized cost, using the effective interest method. The interest payable on borrowings is included in other financing expenses.

The fair value of borrowings, used for disclosure purposes, is determined on the basis of listed market price, if

available. If a listed market price is not available, the fair value is calculated based on the present value of principal and interest cash flows, discounted at the market rate of interest at the reporting date.

Trade and other payables (Note 20)

Trade and other payables are measured at amortized cost, using the effective interest method.

New IFRS accounting standards

Several new accounting pronouncements were issued. We assessed whether our consolidated financial statements for 2012 and beyond may be affected. • IFRS 9, “Financial Instruments” (replacement of IAS 39)

will become effective as from 2015, with earlier adoption permitted. IFRS 9 introduced new requirements for classifying and measuring financial assets and liabilities. This standard encompasses an overall change of accounting principles for financial instruments and will eventually replace IAS 39 – the current standard on financial instruments. As its scope will be further expanded during the next year(s), we will review the effects of a comprehensive standard on financial instruments and consider adoption when appropriate. • The main change resulting from the amendment to

IAS 1, “Financial Statement Presentation” is a requirement to group items presented in other comprehensive income on the basis of potential reclassification to profit or loss. The amendments as such do not address which items are presented in other comprehensive income. This change is effective for our 2013 financial statements. We do not expect that this will have a material impact.

• IFRS 10, “Consolidated Financial Statements” introduces a single control model for consolidation of investees. This standard will be effective as from 2013. We will assess the effect of this standard on our consolidated financial statements during 2012. • IFRS 11, “Joint Arrangements” focuses on the rights

and obligations of joint arrangements and eliminates proportionate consolidation. As we do not apply this method, there is no impact on our consolidated financial statements.

110 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2011

2011 was a year in which we realized and announced several acquisitions and investments:

• In Decorative Paints we have entered into a partnership in China with Quangxi CAVA Titanium Industry Co. Ltd. to help ensure supply of titanium dioxide (TiO2).

• In Performance Coatings, the acquisition of coatings manufacturer Schramm Holding AG has closed early October 2011. This acquisition will enable us to strengthen our global leadership position in specialty plastic coatings.

• In Specialty Chemicals we have acquired patented Zeta Fraction technology from Integrated Botanical Technologies. In addition, in early 2012, we completed the acquisition of Boxing Oleochemicals (“Boxing”), the leading supplier of nitrile amines and derivatives in China and throughout Asia.

The acquisitions in 2011 both individually and in total, were deemed immaterial in respect of IFRS 3 disclosure requirements. Pre-acquisition carrying amounts were not gathered.

Recognized values at acquisition

In € millions Schramm acquisitionsOther Total

Goodwill 46 3 49

Other intangible assets 70 29 99

Property, plant and equipment 51 25 76

Other non-current assets 8 13 21

Inventories 29 6 35

Trade and other receivables 38 7 45

Cash and cash equivalents 6 – 6

Provisions (5) – (5)

Deferred tax liabilities (22) (2) (24)

Long-term borrowings (21) (2) (23)

Trade and other payables (33) (3) (36)

Net identifiable assets

and liabilities 167 76 243

Recognized in the statement

of income – (2) (2)

Consideration paid 167 74 241

Cash and cash equivalents

acquired (6) – (6)

To be paid in 2012 and

later years (5) (7) (12)

Repayments related to

previous years – (19) (19)

Net cash outflow 156 48 204

Note 2: Acquisitions 2

• IFRS 12, “Disclosure of Interests in Other Entities” contains the disclosure requirements for interests in subsidiaries, joint ventures, associates and other unconsolidated entities. This standard will be effective as from 2013.

• IFRS 13, “Fair Value Measurement” replaces the fair value measurement guidance contained in existing IFRS with a single source of fair value measurement guidance. This standard, which is effective as from 2013, is not expected to materially impact our consolidated financial statements.

• The amendment to IAS 19, “Employee Benefits” will become effective in 2013. It includes the requirement that actuarial gains and losses are recognized immediately in other comprehensive income, thus removing the corridor method which we currently apply. In addition, expected return on plan assets recognized in the statement of income is calculated based on the rate used to discount the defined benefit obligation. The impact of this standard on our consolidated financial statements for 2013 can be material, depending on the funded status of our defined benefit plans as at December 31, 2012, and by the difference between the discount rates and the expected return on plan assets rates at that moment.

• The amendment to IAS 27, “Separate Financial Statements” carries forward the existing accounting and disclosure requirements for separate financial statements. This standard is not applicable to our company financial statements, as we prepare these under Dutch accounting principles.

• The amendment to IAS 28, “Investments in Associates and Joint Ventures” addresses the criteria and measurement of associates and joint ventures that qualify as held for sale. This amendment, effective as from 2013, is not expected to materially affect our consolidated financial statements.

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