ANNUAL REPORT 2020

Železiarne Podbrezová a.s. ANNUAL REPORT 2020 55 11 meets the criteria for hedge accounting, any cumulative fair value adjustments reported in equity at that time remain in equity and are recognised in the statement of comprehensive income when the forecast transaction is ultimately recognised in the statement of comprehensive income. When a forecast transaction is no longer expected to occur, the cumulative fair value adjustments reported in equity are immediately recorded to the statement of comprehensive income. Certain derivative transactions, while providing effective economic hedges under the Group’s risk management positions, do not qualify for hedge accounting under the specific rules in IAS 39 and are therefore treated as derivatives held for trading with fair value gains and losses reported in “Other financial income” or “Other financial expenses” in the statement of comprehensive income. (g) Property, plant and equipment (i) Owned assets Property, plant and equipment (“non - current tangible assets”) are carried at cost less any accumulated depreciation and provisions (impairment loss). Cost includes all costs directly attributable to bringing the asset to working conditions for its intended use. Internally - generated non - current tangibleassetsaremeasuredat owncoststhat includethecost ofmaterial, directwagesand overheadcosts directlyassociatedwiththe production of non - current tangible assets until the asset is put into use. Where some significant parts of non - current assets have different useful lives, they are accounted for and depreciated as separate items. (ii) Leased assets Assets acquired under a lease are recognised at their cost as assets as at the acquisition date. The related lease liability is initially measured atthe presentvalue ofthe lease payments payable over the leasetermand discounted atthe interest rate implicit in the lease if such a rate can be readily determined. If this rate cannot be readily determined, the lessee must use their incremental borrowing rate. The related payable to the lessor is recognised as a lease liability in the balance sheet. Finance costs representing the difference between the total lease liability and the fair value of acquired assets are recognised through profit or loss over the lease term (IFRS 16). IFRS 16 “Leases” – issued by IASB on 13 January 2016 – effective for the annual period beginning on or after 1 January 2019 defines a lease as a contract, or part of a contract, that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. At the inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group recognises right - of - use assets and a lease liability in accordance with IFRS 16 where the Group is a lessee. An exemption is applied to short - term leases with the lease term of12months or lessandto leases wherethe underlying asset is of lowvalue. Uponthe initial recognition under IFRS16,theGroupapplieda partially retrospective approach. The right - of - use asset is measured at the same amount as the lease liability adjusted for the lease payments recognised before or at the date of initial application, less lease payments received and initial direct expenses. Subsequently, the right - of - use asset is measured at cost less accumulated depreciation and provisions. The right - of - use asset is depreciated over the shorter of the term of a lease contract and the useful life of the underlying asset. If the ownership title to the underlying asset is transferred to the lessee at the end of the lease term or if it is probable that the lessee will exercise an option to purchase the underlying asset, the right - of - use asset is depreciated over the useful life of the underlying asset. Assets are depreciated starting on the first day of the lease contract. (iii) Subsequent expenditures Any subsequent expenditures incurred to replace a component of non - current tangible assets that is recognised separately, including inspections and general overhauls, are capitalised provided that they meet the basic criteria for the recognition of non - current tangible assets, and the cost of the component can be measured reliably. Other subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of assets exceeding their original performance. All other expenditure made after the acquisition of non - current tangible assets to restore or maintain the extent of future economic benefits is recognised as an expense when incurred (insignificant repairs and maintenance). (h) Intangible assets (i) Goodwill Goodwill arising on an acquisition is initially measured at cost, as stated above in paragraph (c) (i). When adopting IFRS 3, the cost of goodwill is adjusted for impairment losses, if any. Goodwill that arose on business combination is allocated upon an acquisition to cash - generating units (CGU) that are expected to benefit from the synergies of the business combination. The impairment of goodwill is tested annually or more frequently when there is an indication that the unit may be impaired. The recoverable amount ofthe cash - generating unit is determined based on the value in use calculation. Underlying assumptions used in calculating the value in use are assumptions related to the discount rate, growth rate and estimated revenues and expenses during the period. The management estimates discount rates using pre - tax rates that reflect current market assessments of the time value of money and the risks specific to the relevant CGU. (ii) Software Software is measured at cost less accumulated depreciation. Software is depreciated using linear depreciation over the expected useful life, which is 4 – 5 years. (iii) Research and development Costs of research and development are recognised as expenses except those costs incurred on development projects that are recognised as intangible assets to the extent of future economic benefits. However, development costs initially recognised as an expense are not capitalised in subsequent periods. (iv) Subsequent expenditures Subsequent expenditures are capitalised only when it is assumed that they meet the definition of non - current intangible assets and the basic requirements for their recognition. All other expenditures are expensed as incurred. (i) Investment in securities Investments in securities are recognised as at the transaction date and are measured upon acquisition at cost less impairment losses, if any. Held - to - maturity investments are initially recognised at cost and subsequently at amortised cost using the effective interest rate method. Available - for - sale investments represent insignificant unconsolidated subsidiaries and insignificant participations in equity of various companies in which the Group neither holds, directly or indirectly, more than 20% of the voting rights nor exercises substantial influence. Available - for - sale investments are recognised as at the transaction date and are measured at cost at their acquisition. At the reporting date they are measured at fair value based on quoted market prices assuming there is an active market. Unrealised gains and losses are recognised directly in equity until such financial investments are sold or impaired; at which time the accumulated gains and losses are recognised in the statement of NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (IN EUROS)