Annual report 2012

3. Summary of significant accounting policies

a.  Basis for consolidation

The consolidated financial statements comprise the financial statements of Telekom Slovenije and its subsidiaries and jointly controlled entities as at 31 December 2012. Financial statements of subsidiaries are prepared for the same reporting year as the financial statements of the parent company using consistent accounting policies. In the event of inconsistencies in accounting policies, individual companies make the relevant modifications in their financial statements, which form the basis for the consolidated financial statements.

As at the reporting date, the financial statements of subsidiaries are translated into the presentation currency of the consolidated financial statements. The ECB exchange rate prevailing at the reporting date is used for the statement of financial position, while the weighted average exchange rates for the reporting year are used in the income statement.

Exchange differences arising on the translation of functional currencies into the presentation currency are recognised directly in equity and the statement of comprehensive income as a translation reserve, until a foreign subsidiary is sold, when the foreign exchange differences are recognised in the income statement and as a reclassification in the statement of comprehensive income.

All inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated.

All subsidiaries are fully consolidated from the date on which control over the subsidiary is transferred to the parent company or Group company. Subsidiaries are de-consolidated from the date that control of the parent company or the Group company over the subsidiary ceases. If control over a subsidiary ceases during the year, the consolidated financial statements include the results of the subsidiary until the date that such control over the subsidiary still existed.

Investments in associates and interests in jointly controlled entities are accounted for by using the equity method.


b.  Mergers within the Group

Mergers that occur within the Group are considered business combinations under joint control. To account for these mergers, the Group applies the pooling of interests method, where carrying amounts of the acquired and the acquiring companies are pooled as presented in the consolidated financial statements. The entire operations of the acquired company are included in the financial statements of the acquiring company as from the acquisition date.


c.  New standards and interpretations not yet adopted

Telekom Slovenije Group companies have not adopted any standards or interpretations issued and not yet effective

The following new standards and interpretations are not yet effective for the annual period ended 31 December 2012 and have not been applied in preparing these consolidated financial statements.

Amendments to IFRS 7 – Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities. Effective for annual periods beginning on or after 1 January 2013 and interim periods within those annual periods. Earlier application is permitted.

The amendments contain new disclosure requirements for financial assets and liabilities that are:

  • offset in the statement of financial position; or
  • subject to master netting arrangements or similar agreements.

IFRS 10 Consolidated Financial Statements and IAS 27 (2011) Separate Financial Statements

Effective for annual periods beginning on or after 1 January 2014. Earlier application is permitted if IFRS 11, IFRS 12, IAS 27 (2011) and IAS 28 (2011) are also applied early.

This standard is to be applied retrospectively when there is a change in control conclusion.

IFRS 10 provides a single model to be applied in the control analysis for all investees, including entities that currently are SPEs in the scope of SIC-12.  IFRS 10 introduces new requirements to assess control that are different from the existing requirements in IAS 27 (2008).  Under the new single control model, an investor controls an investee when:

  • it is exposed or has rights to variable returns from its involvements with the investee;
  • it has the ability to affect those returns through its power over that investee; and
  • there is a link between power and returns.

The new standard also includes disclosure requirements and requirements relating to the preparation of consolidated financial statements. These requirements are carried forward from IAS 27 (2008).

IFRS 11 Joint Arrangements

Effective for annual periods beginning on or after 1 January 2014; to be applied retrospectively subject to transitional provisions. Earlier application is permitted if IFRS 10, IFRS 12, IAS 27 (2011) and IAS 28 (2011) are also applied early.

IFRS 11 Joint Arrangements supersedes and replaces IAS 31 Interest in Joint Ventures.  IFRS 11 does not introduce substantive changes to the overall definition of an arrangement subject to joint control, although the definition of control, and therefore indirectly of joint control, has changed due to IFRS 10.

Under the new standard, joint arrangements are divided into two types, each having its own accounting model defined as follows:

  • a joint operation is one whereby the jointly controlling parties, known as the joint operators, have rights to the assets, and obligations for the liabilities, relating to the arrangement;
  • a joint venture is one whereby the jointly controlling parties, known as joint venturers, have rights to the net assets of the arrangement.

IFRS 11 effectively carves out from IAS 31 jointly controlled entities those cases in which, although there is a separate vehicle for the joint arrangement, separation is ineffective in certain ways.  These arrangements are treated similarly to jointly controlled assets/operations under IAS 31, and are now called joint operations. In the remainder of IAS 31, jointly controlled entities, now called joint ventures, are stripped of the free choice of equity accounting or proportionate consolidation; they must now always use the equity method in their consolidated financial statements.

IFRS 12 Disclosure of Interests in Other Entities

Effective for annual periods beginning on or after 1 January 2014; to be applied retrospectively. Earlier application is permitted.

IFRS 12 requires additional disclosures relating to significant judgements and assumptions made in determining the nature of interests in an entity or arrangement, interests in subsidiaries, joint arrangements and associates and unconsolidated structured entities.

IFRS 13 Fair Value Measurement

Effective prospectively for annual periods beginning on or after 1 January 2013. Earlier application is permitted.

IFRS 13 replaces the fair value measurement guidance contained in individual IFRS with a single source of fair value measurement guidance. It defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. IFRS 13 explains ‘how’ to measure fair value when it is required or permitted by other IFRS. The standard does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exceptions to fair value measurements that currently exist in certain standards.

The standard contains an extensive disclosure framework that provides additional disclosures to existing requirements to provide information that enables financial statement users to assess the methods and inputs used to develop fair value measurements and, for recurring fair value measurements that used significant unobservable inputs, the effect of the measurements on profit or loss or other comprehensive income.

Amendments to IAS 1 Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income

Effective for annual periods beginning on or after 1 July 2012; to be applied retrospectively. Earlier application is permitted.

The amendments:

  • require that an entity presents separately the items of other comprehensive income that may be reclassified to profit or loss in the future from those that would never be reclassified to profit or loss. If items of other comprehensive income are presented before related tax effects, then the aggregated tax amount should be allocated between these sections;
  • change the title of the Statement of Comprehensive Income to Statement of Profit or Loss and Other Comprehensive Income, however, other titles are also allowed to be used.

Amendments to IAS 12 : Deferred Tax: Recovery of Underlying Assets

Effective for annual periods beginning on or after 1 January 2013; to be applied retrospectively. Earlier application is permitted.

The amendments introduce a rebuttable presumption that the carrying value of investment property measured using the fair value model would be recovered entirely by sale.  Management’s intention would not be relevant unless the investment property is depreciable and held within a business model whose objective is to consume substantially all of the asset’s economic benefits over the life of the asset. This is the only instance in which the presumption can be rebutted.

IAS 19 (2011) Employee Benefits

Effective for annual periods beginning on or after 1 January 2013; to be applied retrospectively. Transitional provisions apply. Earlier application is permitted.

The amendment requires actuarial gains and losses to be recognised immediately in other comprehensive income. The amendment removes the corridor method previously applicable to recognising actuarial gains and losses, and eliminates the ability for entities to recognise all changes in the defined benefit obligation and in plan assets in profit or loss, which currently is allowed under the requirements of IAS 19. The amendment also requires the expected return on plan assets recognised in profit or loss to be calculated based on rate used to discount the defined benefit obligation.

IAS 28 (2011) Investments in Associates and Joint Ventures

Amendments effective for annual periods beginning on or after 1 January 2014; to be applied retrospectively. Earlier application is permitted if IFRS 10, IFRS 11, IFRS 12 and IAS 27 (2011) are also applied early.

There are limited amendments made to IAS 28 (2008):

  • Associates and joint ventures held for sale. IFRS 5 Non-current Assets Held for Sale and Discontinued Operations applies to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale. For any retained portion of the investment that has not been classified as held for sale, the equity method is applied until disposal of the portion held for sale. After disposal, any retained interest is accounted for using the equity method if the retained interest continues to be an associate or a joint venture.
  • Changes in interests held in associates and joint ventures. Previously, IAS 28 (2008) and IAS 31 specified that the cessation of significant influence or joint control triggered remeasurement of any retained stake in all cases, even if significant influence was succeeded by joint control. IAS 28 (2011) now requires that in such scenarios the retained interest in the investment is not remeasured.

Amendments to IAS 32 – Offsetting Financial Assets and Financial Liabilities

Effective for annual periods beginning on or after 1 January 2014; to be applied retrospectively. Earlier application is permitted. However, the additional disclosures required by Amendments to IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities must also be made.

The amendments do not introduce new rules for offsetting financial assets and liabilities; rather they clarify the offsetting criteria to address inconsistencies in their application.

The amendments clarify that an entity currently has a legally enforceable right to off-set if that right is:

not contingent on a future event; and

enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties.

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine

Effective for annual periods beginning on or after 1 January 2013. It applies prospectively to production stripping costs incurred on or after the beginning of the earliest period presented. Earlier application is permitted.

The interpretation sets out requirements relating to the recognition of production stripping costs, initial and subsequent measurement of stripping activity assets.

To the extent that benefits from production stripping are realised in the form of inventory produced, the related production stripping costs are accounted for in accordance with IAS 2 Inventories .

Production stripping costs that improve access to ore to be mined in the future are recognised as a non-current asset if, and only if, all of the following criteria are met:

it is probable that future economic benefits will flow to the entity;

the entity can identify the component of the ore body for which access has been improved; and

the costs relating to the stripping activity associated with that component can be measured reliably.

The stripping activity asset is accounted for as an addition to, or as an enhancement of, an existing asset. The stripping activity asset will initially be recognised at cost while after initial recognition, it is carried at either its cost or its revalued amount, less depreciation or amortisation and impairment losses, in the same way as the existing asset of which it is a part.

The interpretation also requires that when the costs of the stripping activity asset and of the inventory produced are not separately identifiable, the entity allocates production stripping costs between the two based on a ‘relevant’ production measure.

The Group is reviewing the not yet effective standards and interpretations and at this stage cannot reasonable assess the impact of the new requirements. The new standards and interpretations shall be applied by the Group in compliance with their applicability.


d.  Intangible assets

Group companies recognise an item of intangible assets if it is probable that the future economic benefits that are associated with the item will flow to the entity and the cost of the item can be measured reliably.

Intangible assets include:

  • goodwill from business combinations,
  • licences for the use of the radiofrequency spectrum for mobile telephony,
  • software licences,
  • software acquired separately from hardware and used for more than one year, and
  • other intangible assets.

Intangible assets with finite useful lives are stated at cost less accumulated amortisation less impairment losses, while assets with indefinite useful lives are carried at cost less possible impairment losses.

Goodwill occurs upon a business combination. Details of initial measurement of goodwill is disclosed under Note 3.a.

Except for goodwill, Group's intangible assets have finite useful lives.

Amortisation rate and the residual value of intangible assets

Useful lives of significant items of intangible assets are reassessed on an annual basis and if expectations differ significantly from earlier estimates, amortisation rates are restated for the present and future periods. The effect is explained in the report of the period in which the change occurred.

The residual value is reassessed on an annual basis as well.

Intangible assets are amortised on a straight-line basis over their estimated useful lives, from the date that they are available for use.


Estimated useful lives of intangible assets

Groups of intangible assets

Useful lives in years

- concessions, patents and trademarks (licences)

pursuant to contract

- software – application software

3

- other concessions, patents, licences, trademarks and similar right

pursuant to contract

Expenditure on licences for the use of the radio frequency spectrum and computer software is capitalised at cost and amortised on a straight-line basis over its estimated useful life, which ranges between 10 and 22 years.

Individual licences for the use of software are capitalised during the term of the contract i.e. between 2 and 10 years in general.

On an annual basis or as at the date of financial statements, it is checked whether any indications of impairment of intangible assets exist, i.e. it is reassessed whether significant technological changes, market changes or a significant decrease in interest rates occurred. If so, the recoverable amount of such assets is determined.

Impairment of UMTS and GSM licences in Slovenia, Kosovo and Macedonia

The Group established that no indication of impairment of UMTS and GSM licences existed during the reporting period. Accordingly, no impairment test has been performed. Further details are provided in Note 13.

Impairment of goodwill

Impairment of goodwill is estimated for a cash generating unit to which the goodwill is allocated.

Impairment of goodwill requires an assessment of the value in use of the cash generating unit. Defining the present value of future cash flows requires the management to make an estimate of the expected future cash flows from the cash generating unit and also to choose suitable discount rate.

Impairment is recorded in the income statement among other operating expenses under the item 'impairment of intangible assets and property, plant and equipment'.

As at 31 December 2012 no indication of required impairment of goodwill existed. Further details are provided in Note 13.


e.  Property, plant and equipment

Property, plant and equipment owned by Group companies are stated at cost. The cost of an item of property, plant and equipment includes all expenditures that are necessary to make the asset ready for its intended use including costs of preparing the construction site and easement fees.

Costs of borrowing that may be directly attributed to the acquisition, construction or production of an asset under construction are also a part of the cost of an item of property, plant and equipment.

Estimated costs of restoring leased locations for broadcasting stations to their original condition are an integral component of the asset's cost and are amortised over the asset's residual useful life. Provisions required for establishing the original condition, discounted to present value, are reported under long-term provisions.

The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. Costs of construction of property, plant and equipment that are included in cost are recognised as lower costs within profit or loss.

When an item of property, plant and equipment comprises major components having different useful lives, these components are accounted for as separate items of property, plant and equipment.

Cable networks, exchange switches, mobile network equipment and other equipment are measured at cost less less accumulated depreciation and impairment losses. Land, buildings and cable lines are measured at fair value.

Fair value of land, buildings and cable lines

Subsequent to initial recognition, the items of land, buildings and cable lines are carried at fair value on the revaluation day. The revaluation to fair value of these assets is based on a report of an independent appraiser.

The fair value is reassessed when market conditions significantly change or every five years if estimated so by the management.

When an asset's carrying amount is increased as a result of a revaluation, the increase is credited directly to equity as a revaluation reserves in the statement of comprehensive income after the deduction of deferred tax liabilities. The increase is recognised in the income statement if this increase is eliminated by a decrease in the revaluation of the same asset that was previously recognised in the income statement.

Decrease in the carrying amount as a result of revaluation is recognised as revaluation expense in the income statement. The increase is recognised in other comprehensive income only if the same asset previously recorded an increase in value.

Transfer of the amount of depreciation on the restated portion of property, plant and equipment from fixed asset's revaluation reserves to retained earnings is carried out by the Group on an ongoing basis.

Leases in terms of which the lessee assumes substantially all the risks and rewards of ownership are classified as finance leases . Plant and equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. The property, plant and equipment acquired under finance leases are depreciated over the useful life of the asset.

If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term.

All leases other than finance leases are deemed operating leases . Lease payments under an operating lease are recognised as an expense in the income statement on a straight-line basis over the lease term.

If the operating lease contract is terminated prior to the expiration of the lease term, each lease payment required by the lessor as a penalty for the breach of contract is recorded as expense in the period in which the contract is terminated.

Government grants related to assets are presented in the statement of financial position as deferred income in the amount of the grant. They are intended to compensate the costs of depreciation of these assets. The grant is recognized in the income on a straight-line basis over the life of the depreciable asset.

Depreciation rate and the residual value of property, plant and equipment

Useful lives of significant items of property, plant and equipment are reassessed on an annual basis and if expectations differ significantly from earlier estimates, depreciation amortisation rates are restated for the present and future periods. The effect is explained in the report of the period in which the change occurred.

The residual value is reassessed on an annual basis as well.

Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment. In a fiscal year, depreciation is allocated to individual periods on a straight-line basis. 

 

Estimated useful lives of property, plant and equipment

Groups of property, plant and equipment

Useful lives in years

- buildings

20 to 50

- cable lines

20 to 50

- cable network

7 to 25

- other network

2 to 12.5

- exchange switches

4 to 7

- other equipment

2 to 20

Land and assets under construction are not depreciated.

An item of property, plant and equipment under construction is recognised at cost and depreciated when brought to working condition for its intended use.

The Group assesses annually whether there are any internal or external business circumstances (significant technological changes, market changes, obsolescence or physical wear and tear of the asset) that could provide significant indication that an item of property, plant and equipment should be impaired.

An item of property, plant and equipment is subject to impairment if its carrying amount exceeds its recoverable amount. The recoverable amount equals the fair value or the value in use, whichever is higher. Value in use is assessed as the present value of expected future cash flows, whereby the expected future cash flows are discounted to the present value by the use of the discount rate before taxes.

Impairment is recognised in the income statement, except when the value of the asset was increased prior to the impairment and the related impact recorded as a revaluation reserve for property, plant and equipment in the comprehensive income. In such cases, the revaluation reserve is to be decreased first.

Reversal of impairment of property, plant and equipment is recognised if the recoverable value of an asset increases and if this increase can be related objectively to an event occurring after the recognition of impairment. An impairment loss is reversed only to the extent of the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.


f.  Investments

Investments are upon initial recognition classified as:

  • financial assets measured at fair value through profit or loss, or
  • financial assets available for sale, or
  • investments in loans.

Loans and receivables are recognised by the Group as at the day of their accrual. Available-for-sale investments are recognised or derecognised as at the date of purchase or sale, respectively.


Recognition and measurement of investments

Initially, investments are measured at fair value increased by the cost of transactions that arise directly from the acquisition or issue of a financial instrument, with the exception of assets classified at fair value through profit or loss.

Investments in joint ventures are recognised in the consolidated financial statements using the equity method. A joint venture is a contractual agreement in which two or more parties agree to cooperate in an economic operation that is subject to joint control. The financial statements of jointly controlled entities  provide the basis for recognition using the equity method. The reporting date is the same as the Group's reporting date.

Investment in joint ventures are recognised in the statement of financial position at cost, increased by subsequent changes in the equity of a joint venture that belongs to the Group, and reduced for impairment losses. A portion of gains or losses from joint ventures that belong to the Telekom Slovenije Group, is recognised in the Group’s income statement. If the Group's share in the equity of a joint venture changes and the change is not recognised in the income statement, the Group recognises its proportion of changes in the statement of changes in equity.

Investments available for sale include investments designated as held for sale or not classified as loans and receivables or financial assets at fair value through profit or loss.

Investments in debt and equity securities classified as available-for-sale financial assets are carried at fair value.

The fair value of investments in debt and equity securities listed on the stock exchange is their quoted price. If the financial instruments are not listed on the stock exchange and their fair value cannot be reliably determined, they are stated at cost.

Any unrealised gains or losses arising on revaluation are recognised in the net amount directly in equity in the statement of comprehensive income. When an investment is derecognised, accumulated gains or losses previously recognised in equity are eliminated and transferred to the income statement and the statement of comprehensive income, where they are recognised as reclassifications.

Available-for-sale investments are recognised (or derecognised) on the date of commitment to purchase or sell (trade date).

Interest on debt securities is recognised in the income statement at the effective interest rate.

Loans extended or given are stated at amortised cost less impairment losses.


Impairment of investments

The Group assesses at the reporting date whether investments are required to be impaired.

An objective evidence that debt securities and loans must be impaired, exists in case of non-fulfilment of contractual obligations or other indications that the debtor may start bankruptcy proceedings. As for investments in debt securities, an objective evidence of impairment is considered to exist when the value of an item of financial assets or investments has been significantly (by more than 30% of its cost) or permanently (by more than 12 months) reduced or when there is indication that a company in which the Group holds an interest, may start bankruptcy proceedings.

Available-for-sale financial assets

When a decline in the value of an available-for-sale financial asset has been recognised directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity shall be removed from equity and recognised in profit or loss even though the financial asset has not been derecognised. The amount of the cumulative loss that is removed from equity and recognised in profit or loss shall be the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss.

Impairment losses recognised in profit or loss shall not be reversed through profit or loss, unless the fair value of a debt instrument classified as available for sale increases subsequently and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognised in profit or loss.

Loans

The Group monitors the repayment of loans and in case of default, assesses whether there is any indication of required impairment. If there is objective evidence that an impairment loss on loans has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the loss is recognised in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. The amount of the reversal is recognised in profit or loss as long as the carrying amount of the asset does not exceed the amortised cost at the date of reversal.


g.  Derivative financial instruments

Derivative financial instruments are classified as financial assets measured at fair value through profit or loss. Derivative financial instruments are used to hedge the Group’s exposure to risks arising from financing and investing activities.

Derivative financial instruments are stated at fair value. The method of recognition of gains or losses arising from the change in fair value depends upon whether hedge accounting has been applied or not.

When hedge accounting has not been applied, derivative financial instruments are accounted for at fair value with changes in fair value recognised in the income statement.

If the hedging instrument expires, yet the forecasted transaction is still expected to occur, the cumulative gain or loss on the hedging instruments that initially had been reported directly in equity when the hedge was effective remains separately in equity until the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, the cumulative gain or loss on the hedging instrument that initially has been reported directly in equity is transferred to the income statement. The reclassification is recognised in the statement of comprehensive income.

Changes in the fair value of the derivative financial instrument are recognised by the Telekom Slovenije Group in the income statement.


h.  Other non-current assets

Prepaid rentals and compensations are deferred over the contract period and are progressively transferred to rental expenses.

Sale incentives given to subscribers are recognised in the amount by which the equipment’s cost exceeds its selling price, under the condition that subsidies will be covered by the average subscription fee earned over the expected life of the subscriber contract. Therefore, the difference between the selling price and the cost is reported within deferred costs over the expected subscription period.

Over the period of the subscription agreement, deferred costs are amortised proportionally to the cost of sales incentives, starting at the inception of the contractual period. If a subscription agreement is terminated or a subscriber is disconnected from the network due to the non-payment of invoices, subsidies are impaired accordingly.

The Group pays commissions to dealers for attracting new mobile telephony subscribers. The amount of commission depends on the type of subscription package. Customer acquisition costs , including sales incentives are expensed proportionally over the contracted subscription period. Commission which do not relate to the customer acquisition are reported in income statement when incurred.


i.  Investment property

Investment property is initially stated at cost comprising the purchase price and costs that may be directly attributed to the acquisition. Subsequent to initial recognition, investment property is stated at cost less accumulated depreciation.

Depreciation is calculated on a straight-line basis over the useful lives of the assets. Land is not depreciated.

Useful life of investment property equals the similar item of property, plant and equipment if not differently defined in the accompanying document.


j.  Inventories

A quantity unit of inventories is stated at cost comprising the purchase price inclusive of discounts granted, import duties and other non-refundable purchase duties, as well as costs directly attributable to the acquisition.

Inventories are accounted for using the moving average price method.

Slow-moving inventories are written down to their net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.


k.  Trade and other receivables

Trade receivables are recognised at cost less any impairment losses. The Group assesses the creditworthiness of individual customers by means of an internally developed credit rating model, which is based on the combination of an external credit rating and the payment discipline of companies, as well as the payment history of individuals.

Receivables for which individual assessment of collectability was made by management are not taken into account while forming allowances for trade receivables.


l.  Dividends

Dividends are recognised as a liability in the period in which they are declared during the General Meeting of Shareholders of shareholders.


m.  Non-current deferred income

Non-current deferred income comprises co-locations billed in advance, the lease of fibre optics network,  government grants, and the non-refundable transfer of fixed assets and liabilities under the customer loyalty programme.

Non-current deferred income from co-locations and leases are transferred to operating revenue over the contractually agreed term of lease or co-location.

Government grants are used to cover the depreciation costs of assets acquired with a grant and are expensed by transferring them to operating revenue in line with the computed depreciation. Non-current income from customer loyalty programme are utilised by using advantages and benefits


n.  Provisions

Provisions are recognised in the financial statements when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. If material, provisions are determined by discounting the expected future cash flows.

Group companies’ treatment of obligations with uncertain timing and amount depends on management’s estimation of the amount and timing of the obligation and the probability of an outflow of resources embodying economic benefits that will be required to settle the obligation, either legal or constructive.

Contingent liabilities are not recognised because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group companies.

Management of each Group company assesses liabilities continually to determine whether an outflow of resource embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, provisions are recognized in the financial statements of the period in which the change in probability occurs.

Provisions for probable liabilities from legal actions are formed on the basis of the estimation made by the relevant departments of the actions' outcome. The formation of provisions is assessed by the Group individually in view of the amount of the legal action, its subject matter, the plaintiff's assertions and the course of each individual procedure.

Provisions for retirement benefits and jubilee premiums

In accordance with the statutory requirements, the collective agreement, and the internal rules and regulations, the Group is obliged to pay jubilee premiums and retirement benefits. Provisions are calculated by a certified actuary. Provisions are formed in the amount of estimated future payments of termination benefits and jubilee premiums discounted at the balance sheet date. A calculation is made per individual employees taking into account the cost of retirement benefits and the cost of all expected jubilee premiums by the time of retirement. At each year end, the amount of provisions is assessed and either increased or decreased accordingly. The Group has no other pension liabilities.

Provisions for costs of restoring the leased base station locations to their original condition

Provisions are made for costs of the removal of base stations and the restoration of leased property to its original condition. Provisions are formed in the amount of the estimated future costs of the removal of base stations from leased locations, discounted to the present value. The used discount rate is based on the long-term return rate of the risk-free securities At year-end, the amount of provisions is assessed to confirm the amounts.

Provisions for performance bonds issued are created if the amount can be reliably estimated based on service contracts. Assessment is made by the company’s designated professional and approved by the company’s managing director. At year-end provisions are checked to confirm the amounts of provisions.


o Interest-bearing borrowings

Interest-bearing borrowings are recognized initially at amounts from relevant documents that evidence the receipt of cash or payment of an operating debt, which is their fair value.

Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any differences between cost and the redemption value being recognised in the income statement over the terms of the loans on an effective interest rate basis.


p.  Trade and other payables

Trade and other payables are initially stated at cost. Subsequent to initial recognition, trade and other payables are stated at amortised cost.


q.  Short-term deferred items

Short-term deferred income includes accrued subscription fees carried in the amounts invoiced a month in advance, deferred income from sale of prepaid phone cards, deferred income from customer loyalty programme, and other deferred income from invoiced services and goods.

Accrued costs comprise costs of holidays not taken, accrued payroll costs, awards and costs of international services assessed on the basis of services rendered for which invoices have not yet been issued, and other costs referring to the period for which invoices have not yet been issued to the Group. Differences are included in profit or loss upon the receipt of invoices.


r. Revenue

Revenue includes the sales value of goods sold and services rendered in the accounting period.

Revenue from services is recognised when services are rendered and there are no significant uncertainties regarding recovery of the consideration due.

Revenue primarily comprises monthly subscription fees, connection fees, revenue from call charges and charges for other services, revenue from the provision of network interconnection services, revenue from network leasing and revenue from the sale of material and merchandise.

Revenue from monthly subscription fees is recognised in the period to which it relates. Revenue from connection fees is recognised at the time of conclusion of the agreement with the customer. Revenue from call charges and other services rendered to the users is recognised in the period in which calls are made or services are rendered.

Revenue from pre-payment cards is recognised in the period when calls are made. Revenue from network interconnection services and network leasing is recognised in the period in which services are provided. Revenue from the sale of material and merchandise is recognised when the sale is made. Revenue from value added voice services is recognised in net amounts in the period in which services are provided.

Under the customer loyalty programme, customer loyalty credits are accounted for as a separate component of the sales transaction in which they are granted.

Network interconnection

Group companies enter into contracts for network interconnect services. The associated revenue is recognised on the basis of the reasonable estimation of the expected amount, which is reviewed on a monthly basis. Differences between estimates and actual income and expenses occur mostly as a result of allowed deviations in turnover data and price changes. The differences are included in profit or loss when the actual income or expenses are established.


s.  Finance income and expenses  

Interest income and expenses are recognised in the profit or loss as the interest accrues (using the effective interest rate method, i.e. the rate that directly discounts estimated future cash flows over the expected life of the financial instrument) to the net carrying amount of the financial assets.

Dividend income from other companies is recognised in the income statement on the date that the right to receive dividends is established.


t.  Income tax

Income tax for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the date of the statement of financial position, and any adjustments to tax payable in respect of previous years.

Deferred tax is calculated using the statement of financial position liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates enacted at the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilised. A deferred tax asset or liability is recognised irrespective of the time period in which temporary differences are settled. Deferred tax is charged or credited directly to equity, if the tax relates to items that are credited or charged, in the same or a different period, directly to equity. Deferred tax is recognised by the Group for temporary differences between the carrying amount and fair value of assets of subsidiaries.


u.  Statement of cash flows

The statement of cash flows is compiled using the indirect method based on data from the statement of financial position as at 31 December 2012 and 31 December 2011, the income statement items for the financial year 2012, and additional information necessary to make adjustments of cash inflows and outflows. All significant adjustments were taken account in the statement of cash flows for the year ended 31 December 2012.