ANNUAL REPORT 2020

Železiarne Podbrezová a.s. ANNUAL REPORT 2020 11 11 (ii) Government grants Grants are not recognised unless there is a reasonable assurance that the Company will meet the grant - related conditions. Grants are systematically recognised in the statement of comprehensive income in the periods in which the Company recognises as costs the related expenditures to be compensated by the grants. In particular, grants whose principal condition is for the Company to acquire, construct or otherwise obtain non - current assets are reported as deferred income in the statement of financial position and recognised on a systematic basis in the statement of comprehensive income over the useful life of the related assets. The grants which are to be received as compensation for expenditures or losses already incurred or the aim of which is to provide immediate financial aid to the Company without related future expenditures are recognised in the statement of comprehensive income on an accrual basis. (t) Expenses (i) Operating lease payments For operating leases, the lease payments are expensed on a straight - line basis over the lease period. (ii) Financial costs and financial income Financial costs and financial income comprise interest payable on borrowings calculated using the effective interest rate method, interest received, dividend income, proceeds on the sale of financial investments, foreign exchange gains and losses, and bank fees. Borrowing costs directly related to the acquisition of non - current tangible assets are included in the cost of the assets. Interest income is recognised in the statement of profit and loss as it occurs using the effective yield method. Dividend income is recognised in the statement of profit and loss on the date when the dividend is declared. (u) Segment reporting Based on the Company’s management and internal reporting structure, the Company is presented as one business segment, i.e. the production and sale of steel pipes in particular for industrial purposes and supporting services. (v) Income tax Income tax for the year comprises current and deferred tax. Current tax is calculated from the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustments to current tax in respect of previous years. Deferred income tax is calculated, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. Deferred tax is calculated at the income tax rates that are expected to apply to the period when the asset is to be realised or the liability settled. Deferred tax is charged or credited to the statement of profit and loss, except for those items of receivables and payables that are credited or charged directly to equity. Deferred tax is not calculated for the following temporary differences: - Arising from goodwill – not deductible for tax purposes; - Arising from the initial recognition of assets or liabilities that neither affect accounting nor taxable profit and are attributable to other than business combination transactions; and - Arising from investments in subsidiaries, joint ventures and associates, where the Company controls the settlement of temporary differences and it is probable that they will not reverse in the foreseeable future. When calculating deferred tax,the expectedmethod of realisation or settlement of the carrying amount of assetsand liabilities isalso considered. A deferred tax asset is recognised only to the extent that it is probable that the Company will generate a sufficient tax base in the future against which the asset can be utilised. Carrying amounts of deferred tax assets are always considered as at the reporting date. Deferred tax assets and liabilities are offset when there is a legally - enforceable right to offset current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. 4 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATE UNCERTAINTY In the process of applying the Company’s accounting policies, which are described in Note 3, the Company’s management has made the following judgements concerning uncertainties and estimates that have an effect on the amounts recognised in the financial statements. There is a risk of potential adjustments in future periods relating to such matters, including the following: Impairment of property, plant and equipment The Company calculated and recognised a loss on the impairment of property, plant and equipment based on the assessment of their future use, planned disposals and sales. The Company does not believe that any material adjustments are needed in the future owing to the impairment of the Company’s assets considering the production and sales levels (see also Note 5). Litigation The Company is involved in various legal proceedings for which management has assessed the probability of a loss that would result in a cash outflow for the Company. In making this assessment, the Company has relied on the advice of external legal counsel, on the latest available information on the status of the court proceedings, and on an internal evaluation of the likely outcome. The final amount of any potential losses in relation to legal proceedings is not known and based on the management judgement will not result in a material adjustment to previous estimates. Details of the legal cases are included in Note 32.3. Depreciation Non - current tangible assets are depreciated on a straight - line basis over the estimated useful life of individual items of the non - current tangible assets. Land and assets under construction are not depreciated. The estimated useful lives are as follows: - Buildings, halls and structures 12 – 80 years; - Plant, equipment and vehicles 4 – 20 years. Non - current tangible assets acquired under a finance lease are depreciated over their expected useful lives on the same basis as owned assets. The gain or loss arising on the disposal or retirement of an item of non - current tangible assets is fully reflected in the statement of profit and loss. Software is depreciated on a straight - line basis over the estimated useful life from 4 – 5 years. Provision for employee benefits The Company uses a model to calculate employee benefits (see Note 3(n) above), which reflects the expected employee turnover, wage growth, discount factor and all of the benefits the Company plans to pay to the employees. NOTES TO THE SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (IN EUROS)