
CONSOLIDATED FINANCIAL STATEMENTS, IFRS | 15
The standards listed above or other standards that take effect on January
1, 2023 or later are not expected to have a material impact on Rapala
VMC’s consolidated financial statements.
Consolidation principles
The consolidated financial statements comprise the financial statements
of the company and its subsidiaries in which it has control. The control
is based either to governing power established through direct or indi
-
rect holding of over 50% of the voting rights and/or control established
through other means. The financial statements of the subsidiaries are
prepared for the same accounting period as the company, using consis
-
tent accounting policies.
Acquired subsidiaries are accounted for using the acquisition cost
method, according to which the assets and liabilities of the acquired
company are measured at fair value at the date of acquisition. The ex
-
cess of the consideration over the fair value of net assets acquired is
recognized as goodwill. If the cost of acquisition is less than the fair
value of the Group’s share of the net assets acquired, the difference is
recognized directly through income statement. Goodwill on consolida
-
tion is not amortized but tested for impairment annually. Consideration
includes the fair value of any contingent consideration arrangement. Also,
cost directly related to acquisition were included in the cost of acquisition
up to 1 January 2010. The consolidated financial statements include the
results of acquired companies for the period from the completion of the
acquisition. Conversely, divestments are included up to their date of sale.
Associated companies are companies where the Group holds voting
rights of 20–50% and/or in which the Group has significant influence,
but not control. Joint ventures are companies, over which the Group has
contractually agreed to share control with another venturer. Currently as
-
sociated companies and joint ventures are included in the consolidated
financial statements using the equity method. Under the equity method,
the Group’s share of the profit or loss of an associate or a joint venture is
recognized in the consolidated income statement before operating profit.
The Group’s interest in an associated company or a joint venture is
carried in the balance sheet at an amount that reflects the Group’s share
of the net assets of the associate or joint venture together with goodwill
on acquisition, as amortized, less any impairment. Unrealized gains, if
any, between the Group and the associated companies or joint ventures
are eliminated to the extent of the Group’s ownership. Associated com
-
panies’ and joint ventures’ financial statements have been converted
to correspond with the accounting principles in use in the Group. If the
Group’s share of losses exceeds the carrying amount of the investment,
the carrying amount is reduced to nil and any recognition of further losses
ceases unless the Group has incurred obligations in respect of the as
-
sociated companies or joint venture.
The investments in subsidiaries have been eliminated using the acqui
-
sition cost method. All transactions between Group companies as well
as assets and liabilities, dividends and unrealized internal margins in
inventories and tangible assets have been eliminated in the consolidated
financial statements. Non-controlling interest is presented separately
from the net profit and disclosed as a separate item in the equity in ac
-
cordance with the share of the non-controlling interest. All transactions
with non-controlling interests are recorded in equity when the parent
company remains in control. When the Group loses the control in a sub
-
sidiary, the remaining investment is recognized at fair value through the
income statement.
Foreign currency transactions and translations
Each entity in the Group determines its own functional currency and items
included in the financial statements of each entity are measured using
that functional currency.
Foreign currency transactions are translated into functional currency
using the exchange rates prevailing at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies are
retranslated at the functional currency rate of exchange ruling at the
balance sheet date. Non-monetary items denominated in foreign cur
-
rency, measured at fair value, are translated using the exchange rates at
the date when the fair value was determined. Other non-monetary items
have been translated into the functional currency using the exchange rate
on the date of the transaction. Foreign exchange gains and losses for
operating business items are recorded in the appropriate income state
-
ment account before operating profit. Foreign exchange gains and losses
from the translation of monetary interest-bearing assets and liabilities
denominated in foreign currencies are recognized in financial income
and expenses. Exchange differences arising on a monetary item that
forms a part of a net investment in a foreign operation are recognized in
the statement of other comprehensive income and recognized in profit
or loss on disposal of the foreign operation.
The consolidated financial statements are presented in euros, which
is the company’s functional and reporting currency. Income statements
of subsidiaries, whose functional and reporting currencies is not euro,
are translated into the Group reporting currency using the average ex
-
change rate for the year. Their balance sheets are translated using the
exchange rate of balance sheet date. All exchange differences arising
on the translation are entered in the statement of other comprehensive
income and presented in equity. The translation differences arising from
the use of the purchase method of accounting and after the date of
acquisition as well as fair value changes of loans which are hedges of
such investments are recognized in statement of other comprehensive
income and presented in equity. On the disposal of a subsidiary, whose
functional and reporting currency is not euro, the cumulative translation
difference for that entity is recognized in the income statement as part
of the gain or loss on the sale.
Any goodwill arising on the acquisition of a foreign company and any
fair value adjustments to the carrying amounts of assets and liabilities
arising on the acquisition are treated as assets and liabilities of the for
-
eign subsidiary and translated using the exchange rate of balance sheet
date. Goodwill and fair value adjustments arising from the acquisition
prior to January 1, 2004 have been treated as assets and liabilities of
the Group, i.e. in euros.
Revenue recognition
Net sales comprise of consideration received less indirect sales taxes,
discounts and exchange rate differences arising from sales denominated
in foreign currency. Revenue is recognized when the performance obli
-
gation is satisfied, and customer obtains control of that asset. Mainly,
revenue is recognized on products, when they are delivered to the cus
-
tomer in compliance with the contract terms, and the point of time of
transferring the control is identified in customer specific delivery terms
in purchase orders and/or frame agreements. The costs of shipping and
distributing products are included in other operating expenses. Revenues
from services are recorded when the service has been performed. Cus
-
tomer contracts include several different types of afterwards granted
discounts, credits tied to volume and/or value of the deliveries or sales
volumes of specified product groups. The impact of these variable con
-
siderations on the transaction price requires estimation at the point in
time of the revenue recognition.
Rental income arising from operating leases is accounted for on a
straight-line basis over the lease terms. Royalty income is recorded ac
-
cording to the contents of the agreement. Interest income is recognized
by the effective yield method. Dividend income is recognized when the
company has acquired a right to receive the dividends.
Income taxes
The Group’s income tax expense includes taxes of the Group companies
based on taxable profit for the period, together with tax adjustments for
previous periods and the change in deferred income taxes. The income
tax effects of items recognized directly in other comprehensive income
are similarly recognized. The current tax expense for the financial year
is calculated from the taxable profit based on the valid tax rate of each
country. The tax is adjusted with possible taxes related to previous pe
-
riods. The share of results in associated companies is reported in the
income statement as calculated from net profit and thus including the
income tax charge.