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General accounting policies
In accordance with standards and regulations

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), published by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) that have been approved by the European Commission for application within the EU. In addition, the Swedish Financial Accounting Standards Council’s recommendation RFR 1.2 Supplementary Accounting Rules for Groups is applied.

The Parent Company applies the same accounting policies as the Group except in cases listed below under the section “Parent Company accounting policies.” In cases in which the Parent Company’s accounting policies deviate from the Group, this is due to the limited possibilities of applying IFRS in the Parent Company as a consequence of the Annual Accounts Act, the Act on safeguarding of pension commitments and, in certain cases, tax reasons. The Parent Company prepared its Annual Report in accordance with the Annual Accounts Act and the Swedish Financial Accounting Standards Council’s recommendation RFR 2.2 Accounting for Legal Entities.

The Annual Report and the consolidated financial statements were approved for publication by the Board of Directors on March 26, 2010. The consolidated income statement and balance sheet and the Parent Company income statement and balance sheet are subject to approval by the Annual General Meeting on April 12, 2010.

New and changed accounting policies

The applied accounting policies are the same as the policies applied in the preceding year, with the exception of the following standards, interpretations and amendments.

• IFRS 2 Share-bases Payment. Amendment pertaining to vesting conditions (Approved by the EU on December 16, 2008).
• IFRS 7 Financial Instruments: Disclosures. Amendment.
  (Approved by the EU on November 27, 2009).
• IFRS 8 Operating Segments (Approved by the EU on November 21, 2007).
• Revised IAS 1 Presentation of Financial Statements (Approved by the EU on December 17, 2008).
• Revised IAS 23 Borrowing Costs (Approved by the EU on ­December 10, 2008).
• IAS 27 Consolidated and Separate Financial Statements. Amendment pertaining to recognition of dividends received (Approved by the EU on 23 January 2009).
• IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements. Amendment pertaining to classification as shareholders’ equity/liabilities for certain puttable instruments (Approved by the EU on January 21, 2009).
• IFRIC 9 Reassessment of Embedded Derivatives and IAS 39 Financial instruments: Recognition and Measurement. Amendment (Approved by the EU on November 27, 2009).
• IFRIC 13 Customer Loyalty Programs (Approved by the EU on December 16, 2008).
• IFRIC 16 Hedges of a Net Investment in a Foreign Operation (Approved by the EU on June 4, 2009).
• IFRIC 18, Transfers of Assets from Customers (Approved by the EU on November 27, 2009).

The application of these standards and interpretations did not have any impact on the Group’s financial earnings or position. However, they did give rise to changes in the financial statements and additional disclosures in the notes, including, in some cases, updated accounting policies. The most important effects of these changes are described below.

• IFRS 8 Operating Segments (Approved by the EU on ­November 21, 2007)
  This standard contains disclosure requirements pertaining to the Group’s operating segments and replaces the requirement for defining and presenting primary and secondary segments based on business segments and geographical areas under the current standard IAS 14. Instead, the new standard requires presentation of segment information based on a management perspective, meaning that it is presented same manner as used for internal reporting. Furthermore, some geographical information and information about the transactions with customers accounting for more than 10% of the Group’s net sales is required. ­Segment recognition is based on geographical areas according to how the Group is controlled and monitored, which is the same principle as previously.
• Revised IAS 1 Presentation of Financial Statements ­(Approved by the EU on December 17, 2008)
  The revised standard more clearly defines transactions with owner and with non-owners. The standard entails that the statement of shareholders’ equity only represents transactions with owners. Other transactions that were previously included in the statement of shareholders’ equity are presented as other comprehensive income in the statement of comprehensive income. Comprehensive income for the period is to be presented as either a separate report immediately after the income statement or as an extension of the former income statement. The revised standard also entails that a third balance sheet from the start of the comparative year be presented when accounting policies are changed and that previous periods be restated. The Group has chosen to present only one statement, the statement of comprehensive income.

New IFRS, IFRIC interpretations that that have been published but not yet applied

A number of new or amended standards and interpretations of such standards do not come into effect until the next fiscal year and onward. These have not been applied in advance in the 2009 financial statements. A brief description of the standards and interpretations that have not yet been applied by Hemtex but that are expected to have an impact in the future is provided below.

• IFRS 3R Business Combinations and IAS 27R Consolidated and Separate Financial Statements (Approved by the EU on June 4, 2009)
  IFRS 3R introduces a number of changes to the recognition of business combinations. These will affect the amount of goodwill recognized, gains/losses recognized in the period in which the acquisition takes place and future earnings recognized. IAS 27R requires that changes in participating interests in a subsidiary in which the majority owner has not lost its controlling influence be recognized as equity transactions. This means that these transactions no longer give rise to goodwill and do not lead to any gains or losses. Furthermore, IAS 27R changes the recognition of losses arising in subsidiaries and recognition when the controlling influence over a subsidiary ceases. These amendments to IFRS 3R and IAS 27R will affect the recognition of future acquisitions and divestments and transactions with any minority owners.

In addition to the above, neither the new or revised IFRS 2, IFRS 9, IAS 24, IAS 32, IAS 39, IFRIC 12, IFRIC 14, IFRIC 15, IFIRC 17 or IFRIC 19 are expected to have any material effect on the balance sheets or income statements.

Conditions for the preparation of financial statements for the Parent Company and the Group

The Parent Company’s functional currency is SEK, which is also the reporting currency for the Parent Company and the Group. This means that the financial statements are presented in SEK. All figures, if not otherwise stated, are rounded off to the nearest thousand. Assets and liabilities are recognized at historical cost, with the exception of certain financial assets and liabilities that are measured at fair value. Financial assets and liabilities, which are measured at fair value, consist of forward contracts, cash and cash equivalents and receivables and liabilities in foreign currency. 

Preparing the financial statements in accordance with IFRS requires that management make assessments and estimates as well as assumptions that affect the application of accounting policies and the recognized figures for fixed assets, liabilities, revenues and expenses. Estimates and assumptions are based on historical experience and a number of other factors that, under prevailing circumstances, are considered reasonable. The results of these estimates and assumptions are then used in determining the carrying amounts of assets and liabilities, which are not otherwise evident from other sources. Actual outcome may differ from these estimates and assumptions.

Estimates and assumptions are reviewed on a regular basis. Changes in estimates are recognized in the period in which the change occurs, if the change only affects that period, or in the period when the change occurs and future periods if the change affects both the current period and future periods.

In the application of IFRS, assessments made by management that significantly impact the financial statements and appreciations that could cause substantial adjustments in the following years’ financial statements are described in detail in Note 33.

“Events after the closing date” refers to both favorable and un­favorable events that occur between the closing date and the date of the beginning of the following year in which the financial statements are signed by the Board members. Information about significant events after the closing date that were not taken into account when the balance sheets and income statements were adopted is presented in the annual report. Only events that confirm circumstances on the closing date are taken into account when the financial statements are adopted.

The accounting policies for the Group presented below have been consistently applied in all periods presented in the Group’s financial statements, unless otherwise stated below. The Group’s accounting policies were consistently applied in reporting and consolidation of the Parent Company and subsidiaries.

Segment reporting

The Group applies IFRS 8 Operating Segments for its segment reporting. All internal accounting and follow-ups are based on the geographical division, which forms the basis of the company’s principles of division for segment reporting. A segment’s earnings, assets and liabilities include directly attributable items that can be distributed to the segment in a reasonable and reliable manner. In accordance with IFRS 8, segment information is provided only for the Group.

Classification

Fixed assets and long-term liabilities essentially consist of amounts that are expected to be recovered or paid after more than twelve months from the closing date. Current assets and current liabilities essentially consist of amounts that are expected to be recovered or paid within twelve months from the closing date.

Consolidation principles

The consolidated financial statements include the Parent Company, Hemtex AB, and all companies in which Hemtex AB directly or indirectly holds more than 50% of the voting rights or otherwise has a controlling influence over the operating and financial management. Controlling influence implies having the right, directly or indirectly, to influence the company’s financial and operative strategies for the purpose of obtaining economic benefits. Consequently, income statements and balance sheets of franchise holders are not included in the Group’s accounting.

The consolidated financial statements were prepared for all Group companies as of December 31 and in accordance with the purchase method. The equity in the acquired subsidiaries is determined based on a market valuation of the identifiable assets and liabilities at the time of acquisition (known as an acquisition analysis). In cases in which the market valuation of assets and liabilities results in values other than the carrying amounts of the acquired company, these market values comprise the Group’s cost. If the cost of the subsidiary’s shares exceeds the net assets as per the date of acquisition, the difference is recognized as consolidated goodwill. If the cost is less than the value of the net assets, the surplus is immediately ­recognized as earnings in profit and loss.

Goodwill is measured at cost less any accumulated impairment losses. Goodwill is distributed among cashgenerating units and is no longer amortized, but instead tested each year for impairment to determine if there is a need to recognize an impairment loss; see Impairments.

The consolidated income statement includes companies acquired during the fiscal year as of the date of acquisition. Divested com­panies are included up until the date of sale.

Intra-Group transactions

Intra-Group receivables and liabilities, income and expenses, and every unrealized gain or loss that arises from intra-group transactions are eliminated in the consolidated financial statements.

Unrealized losses are eliminated in the same manner as unrealized gains, although only to the extent that there is no indication of ­a need to recognize an impairment loss.

Financial statements of foreign operations

Assets and liabilities in foreign operations, including goodwill and other consolidated surplus and deficit values, are translated from
the foreign operation’s functional currency to the Group’s reporting currency, SEK, at the exchange rate applicable on the closing date. Revenues and costs in foreign operations are translated to SEK using an average rate that corresponds to an approximation of the exchange rates pertaining at each transaction date. Translation differences that arise in translating foreign operations are recognized directly in other comprehensive income as a translation reserve.

Transactions in foreign currencies

Purchases and sales in foreign currencies are translated to the functional currency at the exchange rate prevailing on the transaction date. Monetary assets and liabilities in foreign currencies are translated to the functional currency at the exchange rate prevailing on the closing date. Exchange-rate differences that arise in translations are recognized in profit and loss. Non-monetary assets and liabilities that are recognized at historical cost are translated to the exchange rate at the date of the transaction. In hedging of future contracted currency flows, the translation differences on the hedging transactions are recognized in profit and loss in the same period as the underlying flows. Translation differences are included in operating profit/loss in their entirety.

Revenue

Net sales for the Hemtex Group consist mainly of the sale of goods to consumers in proprietary stores and wholesale sales to franchise stores in the Hemtex chain. Revenue from the sale of goods is recognized as revenue in profit and loss on delivery. Sales are recognized including VAT and after discounts.

Other operating income consists mainly of franchise fees, initial affiliation fees for new stores and bonuses from suppliers and business partners. Franchise fees and bonuses from suppliers are accrued in the income statement as they are earned. Initial affiliation fees for new franchise stores are recognized in the period in which the stores open. Invoicing of marketing services has reduced other external expenses.

Financial income and expenses

Financial income and expenses consist of interest income on cash and interest-bearing securities, interest on loans, dividends received and exchange-rate differences.

Dividends received are recognized when the right to receive ­dividends is determined.

Financial instruments

Financial instruments for the Group are measured and recognized in accordance with regulations in IAS 39.

Financial instruments recognized among assets in the balance sheets include cash and cash equivalents, accounts receivable and derivatives. Accounts payable, issued debt instruments and equity instruments, loan liabilities and derivatives are recognized among ­liabilities and equity.

Financial instruments are initially recognized at the cost corresponding to the fair value of the instrument plus transaction costs for all financial instruments except those belonging to the category financial assets recognized at fair value in profit and loss, which are recognized at fair value excluding transaction costs. Subsequently, reporting depends on the classification shown below.

A financial asset or liability is recognized in the balance sheet when the company becomes a party to the contractual terms for the instrument. Accounts receivable are included in the balance sheet when an invoice has been issued. A liability is recognized when the counterparty has performed and there is a contractual obligation to pay, even if the invoice has not been received. Accounts payable are included when an invoice has been received.

A financial asset is derecognized from the balance sheet when the contractual rights to the asset are realized, extinguished or the company loses control over them. The same applies to a portion of a financial asset. A financial liability is derecognized from the balance sheet when the contractual obligation has been fulfilled or in some other manner extinguished. The same applies to a portion of a financial liability.

Acquisition and divestment of financial assets are recognized on the trade date, which is the date at which the company commits to acquire or divest the asset. In cases where the company acquires or divests listed securities, the settlement date accounting applies.

A financial asset and a financial liability are offset and recognized in a net amount in the balance sheet only when there is a legal right to offset the amounts and there is an intention to settle the items with a net amount or to simultaneously realize the asset and settle the liability.

IAS 39 classifies financial instruments in categories. The classification is based on the intention underlying the acquisition of the financial instrument. Management determines the classification on the original acquisition date. Hemtex has the following categories:

• Financial assets measured at fair value in profit and loss
  Derivatives, in the form of currency forward contracts that have a positive market value, are included in this category. In this category, assets are continuously measured at fair value with value changes recognized in profit and loss. Hedge accounting is not applied.
• Loan receivables and accounts receivable
  Loan receivables and accounts receivable are financial assets that do not represent derivatives with fixed payments or with payments that can be determined, and are not quoted on an active market. Receivables arise when a company supplies money, goods or services directly to debtors without the intention of trading the claims. The category also includes acquired receivables. Assets in this category are measured at accrued cost. Accrued cost is based on the effective interest rate that is calculated at the date of acquisition.

Long-term receivables and other receivables

Long-term receivables and other current receivables are receivables that arise when the company supplies money without the intention of trading in claims. If the expected holding period exceeds one year, they represent long-term receivables and if the time is shorter they represent current receivables. These receivables are included in the category loan receivables and accounts receivable.

Accounts receivable

Accounts receivable are classified in the category loan receivables and are recognized in the amounts that are expected to be received after reduction for doubtful receivables, which are assessed individually. The expected maturity of accounts receivable is short, meaning that the value is recognized at the actual amount without discounting. Impairments of account receivables are recognized as operating expenses.

• Financial liabilities measured at fair value in profit and loss
  Derivatives, in the form of currency forward contracts that have a negative market value, are included in this category. In this category, liabilities are continuously measured at fair value with value changes recognized in profit and loss. Hedge accounting is not applied.
• Other financial liabilities
  Financial liabilities that are not held for trading are measured at accrued cost. Accrued cost is based on the effective interest rate calculated when the liability is recognized. This means that the surplus value and deficit, as well as direct issue costs, are accrued over the term of the liability.

Liabilities

Liabilities are classified as other financial liabilities and are initially recognized in the amount received after reduction for transaction costs. After the acquisition date, the loan is measured at the accrued cost according to the effective interest-rate method. The accrued cost is determined based on the effective interest rate when the loan was taken. This means that surplus and deficit amounts, as well as direct issue costs, are distributed over the loan’s maturity period. Since the loan cannot be paid off before the maturity date, these amounts are distributed over the entire maturity period. Long-term liabilities have an expected maturity of more than one year while current liabilities mature in less than one year.

Accounts payable

Accounts payables are classified in the category other financial liabilities. Accounts payable have a short expected maturity and are measured at the actual amount without interest. Liabilities in foreign currency that are hedged with forward contracts are translated at the hedging rate in cases where the hedging period is less than three months. When the hedging period is greater than three months, the liability is translated at the exchange rate on the date on which the forward contract was entered.

Cash and cash equivalents

Cash and cash equivalents include cash, immediately accessible bank balances and other monetary market instruments with an ­original maturity of less than three months.

Financial investments

Financial investments represent either financial fixed assets or short-term investments depending on the intention of the holding. If the duration or the expected holding exceeds one year, they represent financial fixed assets and if the time is shorter than one year, they represent short-term investments.

Derivative instruments

Hemtex’s derivate instruments include forward contracts that are ­utilized to cover risks in exchange-rate fluctuations. Derivatives also include contractual conditions that are embedded in other agreements. Embedded derivatives should be recognized separately if not closely related to the host contract. The company mainly uses currency forwards to hedge purchases in USD. Hemtex does not apply hedge accounting; instead, value increases and value reductions on derivatives are recognized as income and expenses in operating income. 

Intangible assets

Goodwill

Goodwill represents the difference between the cost for the acquired operation and the fair value of acquired assets, liabilities taken over and contingent liabilities.

Goodwill is measured at the cost less any accumulated impairment. Goodwill is distributed among cash-generating units and is not amortized; instead it is tested at least annually for any impairment.

Capitalized expenditure relating to computer software

The acquisition cost of licenses and development of major IT systems for internal use is capitalized if it is believed they will be of value to the company over a period of several years. Direct and indirect external and internal expenses for development of software for the company’s use are capitalized. Expenses for preliminary studies, training and regular maintenance are expensed as incurred.

Internally generated goodwill and brands

Expenses for internally generated goodwill and brands are recognized in profit and loss as costs when they arise.

Rental rights

Rental rights acquired by the Group are recognized at cost less accumulated depreciation and any impairments.

Additional expenses for intangible assets are added to cost only if they increase future financial advantages that exceed the original assessment and the expenses can be reliably calculated. All other costs are expensed as incurred. 

Tangible assets

Tangible fixed assets are recognized as assets in the balance sheet if it is believed that they will be of future economic value to the company and the cost of the asset can be calculated in a reliable manner.

Tangible fixed assets in the Group are recognized at their acquisition cost less deduction of accumulated depreciation and impairment, if any. The cost includes the acquisition price and expenses directly attributable to the asset being put into position and in working order for utilization according to the purpose of the acquisition. Examples of directly attributable expenses included in the cost are costs for delivery and handling, installation, consultancy services and legal services.

Additional expenses are added to the cost to the extent the performance of the assets has been improved in relation to its performance level when originally acquired. Other added expenditures are recognized as a cost in the period in which they arise.

Leased assets

As a lessee, the company and the Group have signed financial and operational leasing and rental agreements. In the consolidated financial statements, the leasing assets in financial leasing agreements are recognized as tangible fixed assets and the future obligation to the lessor as a liability in the balance sheet. Other agreements are operational agreements in which the leasing costs are distributed evenly over the agreement period. In the Parent Company, all leasing agreements are recognized as operational. The consolidated financial leasing agreements include store fixtures and fittings, computers, vehicles and IT systems. The consolidated operational leasing agreements refer mainly to premises for offices and stores.

Depreciation/amortization

Tangible and intangible assets are depreciated/amortized based on the original cost less the calculated residual value and are depreciated/amortized straight-line over the estimated useful life and recognized as an expense in profit and loss. Every component of a tangible fixed asset with a cost that is significant in relation to the total cost of the asset is depreciated separately. The following periods are applied:

Intangible assets

Capitalized expenses for computer software	5 years
Rental rights	5–10 years

Tangible assets

Equipment, fixtures and fittings	3–5 years
Improvement expenses to premises not belonging to Hemtex	5 years

In accordance with IAS 38 Intangible Assets, goodwill is not amortized in the consolidated financial statements. Instead, these assets must be tested for impairment at least once each year. This testing may be performed more often if events or circumstances indicate a need to recognize an impairment loss. Each individual store is defined as the smallest cash-generating unit. Certain stores are grouped in cash-generating units. From the 2010 fiscal year, Hemtex intends to redefine its lowest cash-generating unit to correspond to the Group’s operating segments since this level corresponds to how internal reporting and monitoring is performed.

Inventories

Inventories are measured in accordance with IAS 2 Inventories and recognized at the lower of the cost and the net selling value. The net selling value is the estimated sales price in ongoing operations less estimated costs for completion and selling costs. Cost is calculated according to weighted average prices. 

Impairment

On every closing date, impairment testing is performed to determine whether there is any indication that the carrying amounts of Group assets should be reduced. If such indications exist, the recoverable value of an asset is calculated. For goodwill, impairment testing takes place at least once a year, regardless of whether or not there is an indication of a need to recognize an impairment loss. The recoverable value is the higher of an asset’s net selling price and its value in use. With respect to recoverable values for goodwill, they are based on the value in use. To determine an asset’s value in use, the discounted present value of the estimated future cash flows expected to arise from the asset during its useful life is calculated. The present value calculation is based on a computed interest rate before tax that reflects the current market rate and the risk attribut­able to the asset. If the recoverable value is less than the carrying amount, the asset is written down to its recoverable value. On each reporting occasion, the company evaluates whether there is objective evidence that a financial asset or group of assets needs to be impaired. Objective evidence comprises observable conditions that have occurred and have a negative effect on the possibility to recover the cost, as well as a significant or prolonged reduction in the fair value of an investment in a financial investment classified as an available-for-sale financial asset. Reversals of impairment losses are made if there has been a change in the assumption that formed the basis for the recoverable value. Impairment of goodwill is not reversed. Impairment losses are only reversed to the extent that the asset’s carrying amount after the reversal does not exceed the carrying amount that the asset would have had if there had been no impairment and with consideration taken to the impairment that then would have been recognized. Impairment losses and reversals of impairment are recognized in profit and loss.

Dividends

Dividends are recognized as liabilities following the approval of ­dividends by the Annual General Meeting.

Earnings per share

The calculation of earnings per share is based on profit in the Group attributable to the Parent Company shareholders and the weighted average number of outstanding shares during the year. In calculating earnings per share after dilution, profit and the average number of shares are adjusted to take into account the effects of potentially diluting common shares, which during the reporting periods are attributable to the warrants acquired by senior executives and key persons within the Group.

Pensions

Commitments for pensions are classified either as defined-contribution plans or as defined-benefit plans. The plans comprise mainly an old-age pension, sickness pension and survivor pension. Obligations relating to contributions for defined-contribution plans are recognized as an expense in profit and loss as they arise. The value of a defined-benefit plan is determined by the current value of the defined-benefit commitment plus/minus actuarial gains and losses not included in the income statement, less the fair values of any managed assets with which the commitment is to be met. If the net value consists of a liability, it is recognized in the balance sheet as a provision. If the net value consists of an asset, it is recognized as a long-term financial receivable. The Hemtex Group’s commitments for salaried employees in Sweden are secured through insurance with Alecta. In accordance with a statement from the Swedish Financial Accounting Standards Council’s Emerging Issues Task Force (UFR3), this is a defined-benefit plan that comprises several employers. At present, Alecta is unable to provide such information that would make it possible to recognize this ITP plan as a defined-benefit plan. Accordingly, the pension plan in accordance with ITP that is secured through a policy with Alecta is recognized as a defined-contribution plan. At the end of December 2009, Alecta’s surplus in the form of the collective funding ratio amounted to 141%. The collective funding ratio comprises the market value of Alecta’s assets as a percentage of insurance commitments according to Alecta’s actuarial calculation methods, which is not consistent with IAS 19.

Pensions in Finland, Denmark and Norway are defined-contribution pension plans. This year’s pension expenses are specified in Note 4.

Severance pay

A provision is recognized in conjunction with termination of employees only if the company is unquestionably obligated to terminate an employee prior to the scheduled time or when compensation is paid as an offer to encourage voluntary resignation. In cases where the company terminates employees, a detailed plan is prepared that includes workplace, positions held and the approximate number of employees involved and the contributions for each personnel category or position and the time for the implementation of the plan.

Share-based payment

At Hemtex AB, there was one outstanding incentive program on December 31, 2009. The incentive program comprised warrants and employee options. An options program enables employees to acquire shares in the company. The fair value of the allotted options is recognized as a personnel expense, with a corresponding increase in equity. The fair value is calculated at the time of allotment and is distributed over the earning period. The fair value of the allotted options is calculated using a binomial method and consideration is given to the terms and conditions applicable at the time of allotment. The expense recognized corresponds to the fair value of an assessment of the number of options expected to be earned. This expense is adjusted in subsequent periods to reflect the actual number of options earned. However, no adjustment is made when forfeiture is due to the share price not reaching the level at which options are earned. Social security expenses attributable to share-based instruments as remuneration for services purchased are expensed across the periods in which the services are rendered. Provisions for social security contributions are based on the fair value of the options allotted at the time of recognition. Fair value is calculated using the same valuation model used when the options were issued. See Note 4 regarding terms and conditions for the program.

Provisions

A provision is recognized in the balance sheet when the Group has an existing legal or informal obligation resulting from a transpired event and it is likely that a flow of economic benefits will be required for its settlement. Where the effect of when payment occurs is significant, provisions are calculated by discounting the expected future cash flow at an interest rate before tax that reflects current market assessments of the monetary value over time and, if appropriate, the risks associated with the debt.

Taxes

The company and the Group apply IAS 12. Total tax consists of current tax and deferred tax. Taxes are recognized in profit and loss, other comprehensive income or directly in shareholders’ equity based on when the underlying transaction is recognized directly against equity.

Current tax is tax that is to be paid or received in reference to the current year. This also includes adjustment of current tax attribut­able to prior periods.

Deferred tax is calculated in accordance with the balance sheet method, based on temporary differences between recognized and tax values of assets and liabilities. The amounts are calculated based on how the temporary differences are expected to be settled and with the application of the tax rates and tax rules that have been adopted or announced as per the closing date. Temporary differences are not taken into consideration in consolidated goodwill or in differences attributed to shares in subsidiaries and associated companies that are not expected to be taxed within the foreseeable future. Untaxed reserves including deferred income tax liability are recognized in a legal entity. In the consolidated financial statements, on the other hand, untaxed reserves are divided into deferred income tax liability and equity.

Deferred tax assets pertaining to deductible temporary differences and loss carry-forwards are recognized only to the extent to which they are likely to result in lower tax expense in the future.

Borrowing costs

Borrowing costs are charged against earnings in the period to which they are attributable. These costs shall be capitalized if the borrowing costs arise as part of the financing of a qualifying asset.

Contingent liabilities

A contingent liability is recognized when there exists a possible obligation arising from past events and whose existence will only be confirmed by one or more uncertain future events or when there exists an obligation that is not recognized as a liability or provision since it is not probable that an outflow of resources will be required.

Cash-flow statement

The cash flow statement was prepared in accordance with the indirect method, implying that profit after financial items was adjusted for transactions that did not involve receipts or disbursements during the period and for any revenue or expenses attributable to cash flow from investing activities. Approved, unutilized overdraft facilities are not recognized as cash and cash equivalents.

The Parent Company’s accounting policies

The Parent Company prepares its annual accounts in accordance with the Annual Accounts Act (1995:1554) and the Swedish Financial Accounting Standards Council’s recommendation RFR 2.2 Accounting for legal entities. RFR 2.2 means that the Parent Company, in the annual account for legal entities, will apply all EU-approved IFRS and statements, as far as possible, within the framework of the Annual Accounts Act and taking into account the connection between the accounting and taxation. The recommendation specifies which exceptions and supplements that should be applied in relation to IFRS.

Differences between the Group’s and the Parent Company’s accounting policies

Differences between the accounting policies of the Group and the Parent Company are stated below. The accounting policies for the Parent Company stated below have been consistently applied in all periods presented in the financial statements of the Parent Company.

Classification and structure

The Parent Company’s income statement and balance sheet are structured according to the stipulations of the Annual Accounts Act.

Subsidiaries

Shares in subsidiaries are recognized in the Parent Company according to the cost method. Revenue recognized includes all received dividends. Impairment losses are recognized on the item “Shares in subsidiaries” if there are indications or reason to believe that the recoverable amount is less than the carrying amount.

Financial instruments

Due to the connection between accounting and taxation, the rules in IAS 39 regarding financial instruments are not applied in the Parent Company as a legal entity. Instead, these rules will only be applied in the consolidated financial statements in the future. In the Parent Company, a principle is applied based on the cost method. What is otherwise stated above with regard to financial instruments, however, also applies in the Parent Company. Derivative instruments consist of currency forward contracts that are used to reduce trans-action exposure in foreign currency and for which hedge accounting is not applied.

Financial guarantees

The Parent Company applies the relaxation rule in RFR 2.2 which means that a legal entity does not need to apply the rules in IAS 39 regarding guarantee agreements on behalf of subsidiaries and associated companies. Instead, the rules in IAS 37, items 14 and 36, are applied in these cases, meaning that financial guarantee agreements are recognized as a provision in the balance sheet when Hemtex AB has a legal or informal obligation as a result of a transpired event and when it is probable that an outflow of resources will be required to settle the obligation. In addition, it must be possible to reliably estimate the amount.

Intangible assets

In the Parent Company, goodwill is recognized in the balance sheet as accrued in conjunction with the merger of subsidiaries and asset acquisition. In the Parent Company, impairment of goodwill occurs over 20 years, unlike the Group, which is motivated by the estimated long-term strength in the Parent Company’s operations.

Leased assets

All leasing agreements in the Parent Company are recognized in accordance with the rules for operational leasing.

Taxes

In the Parent Company, untaxed reserves including deferred accrued taxes are recognized. However, in the consolidated financial statements, untaxed reserves are divided into deferred accrued taxes and equity.

Pensions

In the Parent Company, other criteria are applied in calculating defined-benefit plans than what is stated in IAS 19. The Parent Company complies with the provisions regarding the law on safeguarding of pension commitments and directives from the Swedish Financial Supervisory Authority, since this is a condition for tax-deduction rights. Compared with the rules in IAS 19, the significant differences are how the discount rates are determined, that the calculation of the defined-benefit commitment is based on current salary levels without assumptions on future salary increases, and that all actuarial gains and losses are recognized in profit and loss as they arise.

Shareholders’ contributions and Group contributions

The company recognizes Group contributions and shareholders’ contributions in accordance with statements from the Swedish Financial Reporting Board. Shareholders’ contributions are recognized directly against equity of the recipient and capitalized in shares and participations of the contributor, to the extent that impairment is not required. Group contributions are recognized according to financial significance. It means that Group contributions that are paid in order to minimize the Group’s total tax are recognized directly against retained earnings after deduction for its current tax effect.