ANNUAL REPORT 2020

Železiarne Podbrezová a.s. ANNUAL REPORT 2020 9 9 (c) Transactions in foreign currencies Cash items denominated in a foreign currency are translated to euro using the reference exchange rate determined and announced by the European Central Bank(ECB) or the National Bank of Slovakia (NBS) on the date preceding the transaction date. At each end of a reporting period, cash items denominated in a foreign currency are translated to euro using the reference exchange rate determined and announced by the European Central Bank (ECB) or the National Bank of Slovakia (NBS) on the reporting date. Non - refundable advances received and made in a foreign currency are not translated as at the reporting date. Non - cash items measured at a fair value and denominated in a foreign currency are translated using the exchange rate prevailing at the date of the fair value measurement. Non - cash items measured at a historical cost and denominated in a foreign currency are not translated. For foreign currency purchases and sales in euro, and upon the transfer of funds from an account established in a foreign currency to an account established in euro and from an account established in euro to an account established in a foreign currency, the exchange rates at which these amounts were purchased or sold were applied. If the sale or purchase of a foreign currency is performed at an exchange rate other than the one offered by a commercial bank in its foreign exchange list, the exchange rate offered by such commercial bank in its foreign exchange list on the transaction settlement date is used. If the sale or purchase is not performed with a commercial bank, the reference exchange rate determined and announced by the ECB or the NBS on the date preceding the transaction settlement date is used. (d) Financial instruments Financial assets and financial liabilities are recognised on the Company’s balance sheet when the Group becomes a party to the contractual provisions of a financial instrument. The Company’s financial instruments represent available - for - sale investments, receivables, interest - bearing loans and borrowings, payables and financial derivatives. (e) Property, plant and equipment (i) Owned assets Property, plant and equipment (the “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 conditionsfor its intended use. Internally - generated non - current tangible assets are measured at own costs, which include the cost of raw materials, direct wages and overhead costs directly associated with the 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 recognised and depreciated as separate items. (ii) 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. All other expenditures made, after the acquisition of non - current tangible assets, to restore or maintain the extent of future economic benefits are recognised as expenses when incurred (insignificant repairs and maintenance). (f) Non-current intangible assets (i) 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. (ii) Research and development Researchand developmentcostsare recognisedasexpenses except costs incurred on development projects, whichare recognisedasnon - current intangible assets in the extent of their future economic benefits. Development costs initially recognised as an expense, however, are not capitalised in subsequent periods. (iii) Subsequent expenditures Subsequent expenditures are capitalised only when it may be expected that they will increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures are expensed as incurred. (g) Investment in securities Investments in securities are recognised as at the transaction date and are measured at cost less any impairment loss. Investments in subsidiaries, joint - ventures, and associates are measured at cost. 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 participations in the equity of various companies in which the Company neither holds, directly or indirectly, more than 20% of the voting rights, nor exercises substantial influence. Investments available for sale are recognised as at the transaction date and are measured at their acquisition cost. At the reporting date they are measured at fair value based on quoted market prices if there is an active market. Unrealised gains and losses are recorded 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 profit and loss. In the event that the fair value of available - for - sale investments cannot be reliably estimated, the investments are carried at cost less any items reflecting their permanent impairment; provisions are recognised in the statement of comprehensive income. (h) Trade and other receivables Trade and other receivables are measured at the expected realisable value, including provisions for bad and doubtful receivables. (i) Inventories Inventories are measured at the lower of cost, own costs, or net realisable value. Net realisable value represents the estimated selling price less the estimated costs of completion and costs of distribution. A provision is mainly created for slow - moving and obsolete inventories based on an individual assessment. Raw materials are measured by weighted average cost, which includes the cost of acquiring the materials and other costs related to the acquisition that arose on bringing the assets to their current condition and location. A provision for raw materials is created for purchased inventories with no movement based on the following criteria: - If a period of more than one year has lapsed from the receipt to a warehouse, a provision in the amount of 25% is created; - If a period of more than two years has lapsed from the receipt to a warehouse, a provision in the amount of 50% is created; - If a period of more than three years has lapsed from the receipt to a warehouse, a provision in the amount of 75% is created; and - If a period of more than four years has lapsed from the receipt to a warehouse, a 100% provision is created. Work in progress, semi - finished products, and finished products are measured at own cost, which includes the costs of raw materials, wages and salaries, other direct expenses and production overheads depending on the stage of completion of the inventory. NOTES TO THE SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (IN EUROS)