Accounting policies
GeneralThe annual report comprises of the Report from the Board of Directors, the companyıs and the Groupıs Profit and Loss Accounts, Balance Sheets, Cash Flow Statement, and Notes to the financial statements.
In 1996 and 1995, there were changes made in the organisation of the Group that affect the comparability between the different years for Telenor AS. The comparative figures for Telenor AS for fiscal year 1994 are from the pro forma profit and loss account for the public enterprise Televerket and the joint-stock company Televerket AS. Up until 31 October 1994, Televerket was a public enterprise. On 1 November 1994 the public enterprise was converted into a joint-stock company with the Government transferring the business and establishing the capital of Televerket AS. Since Televerket was not a separate legal entity for taxation purposes, the accounts for the 1994 fiscal year, therefore, only consider the tax charge for Televerket AS for the period 1 November 199431 December 1994.
The annual accounts have been presented in accordance with accounting legislation and Norwegian generally accepted accounting principles. All amounts are in NOK million and refer to the Telenor Group unless otherwise indicated.
Consolidation principles
The Group accounts comprise Telenor AS and all subsidiaries in which Telenor AS owns more than 50 per cent of the capital and has a controlling influence. These companies are disclosed in Note 12. The Group accounts show the Groupıs financial situation and result when these companies are regarded as one.
Shares in subsidiaries are eliminated in accordance with the purchase method of accounting. All significant transactions and balances between companies in the Group are eliminated. Minority interests in the profit for the year and equity are shown as separate items in the profit and loss account and balance sheet. The results of companies acquired during the year are consolidated from the date of acquisition.
Accruals and classification principles
Income
Traffic income is billed in arrears and recorded as income at the time of delivery. Subscription income is billed in advance and allocated evenly over the subscription period. Individual service assignments are recorded as income as performed. Income from service agreements is recognised over the term of the agreement.Cost of goods sold and traffic chargesTelenor settles traffic to and from Norway with foreign telecommunications operators. Traffic costs to foreign countries represent remuneration to the foreign telecommunications operators for their share of the traffic from Norway. The share of traffic from abroad is similarly recorded as traffic revenue by Telenor.
Telecommunication traffic to and from mobile networks is settled in a similar manner. Telenor receives a remuneration for its share of the externally generated traffic, while the cellular operatorsı share of external mobile-terminated traffic is recorded as traffic costs in Telenorıs accounts.
Pension cost and pension obligations
The manner in which pension costs are dealt with in the accounts is in accordance with the Draft Norwegian Accounting Standard for Pension Costs. According to this standard, the group pension scheme is dealt with as a defined benefit plan. Up to 31 August 1995 most of Telenorıs employees were covered through the Norwegian Public Service Pension Fund. This scheme was dealt with as a supplementary scheme.
The group pension plan is covered through the foundation Telenor Pensjonskasse. 17,719 of the Groupıs employees are covered through Telenor Pensjonskasse.
In addition, the company has a number of small group pension schemes with independent insurance companies and a separate pension fund for executive officers.
The pension costs and pension obligations for the defined benefit scheme are calculated on the basis of assumptions made regarding the discount rate, future salary adjustments, pensions and benefits from the National Insurance Scheme, future yields on pension funds and actuarial assumptions regarding mortality, voluntary retirement etc. The pension fund assets are valued at their actual value, and deducted from net pension obligations recorded in the balance sheet. Any surplus funding is recorded on the balance sheet to the extent that such a surplus funding can probably be utilised. Changes in the obligations and pension fund assets that are the result of deviations and estimates/assumptions are realised over the expected remaining pension-earning period (15 years) if the deviations exceed 10 per cent of gross pension obligations (pension fund assets if these are higher). Deviations that are not recorded appear from Note 2. The companyıs legal obligations are not affected by the manner in which they are dealt with in the accounts.The basis for calculating the yearıs pension cost for the defined benefit scheme is based on the number of qualifying (pension earning) years, salary level on retirement and the following assumptions:
| Discount rate | 7.0% |
| Annual salary adjustment/increase in NIS basic amount (G) | 3.5% |
| Annual adjustment to pensions | 2.5% |
| Return on pension fund assets | 8.0% |
| Leaving rate | 2.5% |
Early retirement costs
Early retirement costs are charged within personell costs in the year the decision to retire is made, based on estimated future costs.
Early retirement was offered to Televerketıs staff from 1 March 1993. It has been continued in Telenor AS through to the end of 1996. The offer is made to employees over 60 years of age. The cost of early retirements is met by Telenor AS. The early retirement pension amounts to 66 per cent of ordinary pension base plus a supplement of 1/4 G. The net present value of anticipated pension obligations is included under long-term debt in the balance sheet. A discount rate of 7 per cent has been used and the amount includes payroll tax.
The obligationıs internal cost of funding is calculated. The interest element is presented as a financial expense.
Research and development costs
Research and development costs are charged within the appropriate costs as incurred.
Taxes
The tax charge includes the taxes payable for the period as well as changes in deferred tax benefits/liabilities. Changes in deferred tax/deferred tax benefits/liabilities represent taxes which relate to the financial results for the period but which will become due for payment/receipt during later periods. Deferred tax benefits/ liabilities are calculated by making full allocation for all temporary timing differences including losses carried forward in accordance with the liability method, using nominal amounts and the tax rate at the balance sheet date.
Classification of assets and liabilities Items which are linked to the business cycle, or which normally fall due for payment within one year of the balance sheet date, are classified as current assets or short-term liabilities in the balance sheet. Assets acquired for the purpose of long-term holding are classified as fixed assets. The distinction between short-term liabilities and long-term debt and receivables is normally drawn one year before the payment matures. Liabilities where the underlying facility is of a long-term nature are treated as long-term debt, irrespective of the actual maturity date.
Other
Gains and losses resulting from the sale of fixed assets are treated as part of normal business operations and classified as ordinary operating income and expenses.
Valuation principles
Bonds, certificates and other securities
The Groupıs investments include shares, bonds, certificates and cash deposits. The portfolios are managed as uniform groups, and an adjustment in value is only made if the total portfolio has a lower market value than the original cost (the portfolio principle). Net unrealised losses are recorded as an expense under financial items, while unrealised gains are only recorded as income to the extent they reverse previously expensed losses.
Accounts receivable
Accounts receivable are recorded at their nominal value, less a provision for bad debts. Accrued, not yet invoiced income is classified as accounts receivable.
Inventories
Inventories are valued at the lower of original cost price and market value. A deduction is made for obsolescence. Spare parts that are linked to specific fixed assets are capitalised and depreciated over the economic life of the underlying asset.
Shares and other investments
Shares and other investments, including shares in associated companies, are valued at historical cost, or market value if it is determined that there has occurred a permanent diminution in value. Any return received is recorded as financial income. Distributions received over and above the scheduled plan from the satellite organisations are recorded as long-term debt until final approval for the distribution is received.
Fixed assets/depreciation
General
Capitalised assets include investments which increase capacity or substantially improve quality. These are recorded in the balance sheet at historical cost less accumulated depreciation and write-downs. Ongoing maintenance costs are charged to the profit and loss account. Ordinary depreciation is based on the expected economic and technical life of the asset from the time the asset was brought into normal operations. Depreciation on fixed assets taken over from the public enterprise Televerket, on 1 November 1994, is based on historical cost.
Internal investment costs are directly capitalised and are not shown as operating income or expenses. Internal costs related to investments in administrative support systems are expensed as incurred.
Depreciation principles Depreciation is provided on fixed assets on a straight line basis using the following rates:
| Office machinery and equipment | 2030% |
| Satellites, computer equipment, software in exchanges | |
| and other equipment with a short economic life | 1020% |
| Transmission and exchange equipment | 1020% |
| Cable and power supply installations | 68% |
| Buildings | 34% |
| Goodwill | 1033% |
Goodwill On acquiring another company for a consideration which exceeds the value of the individual identifiable assets or liabilities, the difference is recorded as goodwill on the balance sheet. Goodwill is amortised on the basis of estimated economic life, but not over a period longer than 20 years. Goodwill related to an underlying licence agreement is amortised over the term of the agreement. If, however, the actual value is assessed to be lower at year-end, the value is written down to market value.
Depreciation principles, mobile telephone network NMT and pager networks that were taken over from Televerket on the formation of Telenor Mobil AS on 1 January 1993 are depreciated using the ³sum of the digits² method based on the expected earnings profile. The GSM network and other ordinary fixed assets are depreciated on a straight-line basis. When calculating the annual depreciation, an expected economic life of between 5 and 8 years has been assumed.
Depreciation principles, cable-TV installations Cable-TV installations that were taken over on the establishment of TBK a.s in 1988 and acquired systems that are in operation, are depreciated on a straight line basis over 10 years. Investments in the trunk network are depreciated over 12 years.New development projects are depreciated on the assumption that 1/2 of the aggregate net income from a new project refers to the connection charges to new subscribers. The remaining 1/2 refers to the annual subscription income. Against this background, 1/2 of the project costs are depreciated on a straight line basis over 12 years, while the remaining costs are expensed over 4 years, of which about 1/2 in the year of construction and the remainder equally distributed over the following 3 years. Internal administration and planning costs linked to new projects are charged to the profit and loss account.
Foreign exchange Liquid assets denominated in foreign currencies are translated at the rate prevailing on the balance sheet date.
Unhedged receivables and payables in foreign currencies are translated at the lower/higher of the historical or year-end rates. Receivables and payables denominated in the same currency are netted, but in such a manner that short-term and long-term items are treated separately.
For unhedged positions, unrealised losses are expensed, while unrealised gains are only recognised as income to the extent that they reverse previously expensed losses.
Financial instruments
Interest rate swaps
Interest rate swaps and future interest agreements are used to achieve the desired interest structure between the Groupıs interest-bearing assets and liabilities. Interest income and expenses are recorded as incurred.
Forward contracts and currency swap agreements
Forward contracts and currency swap agreements are undertaken to adjust the foreign exchange exposures in the balance sheet with regard to the formally agreed rate at which the receivable/payable is due. In such cases, the forward contract/swap agreement is taken into consideration when determining the accounting treatment of the corresponding payable/receivable.
Forward rate premiums/discounts are allocated over the term of the contract.
