General

The Company maintains its accounting records in Croatian Kuna and in accordance with the Croatian law and the accounting principles and practices observed by enterprises in Croatia.

Basis of preparation

The Company’s financial statements have been prepared under the historical cost convention and in accordance with Croatian law and International Accounting Standards.

Reporting currency

The Company’s financial statements have been prepared in Croatian Kuna (HRK). The effective exchange rate as of 31 December 2000, was Kuna 8.1553 per 1 United States Dollar (1999, 7.6476) and Kuna 3.8849 per 1 German Mark (1999, 3.92662).

Intangible fixed assets

Intangible fixed assets represent software (SAP, SOFTPRO) and are stated at purchase cost. They are amortised on a straight-line basis over a life of 4 years.

Tangible fixed assets

Tangible fixed assets are shown at historical cost, modified to reflect hyperinflation prior to 31 December 1993 as required by IAS 29, less accumulated depreciation.

Depreciation is provided on a straight-line basis by following the estimated economic useful life of the assets, as follows:

Expenditure on repairs and maintenance is expensed as incurred.

Workers’ apartments to be sold are stated on the same basis as tangible fixed assets. Classified with workers’ apartments to be sold in the balance sheet are receivables for apartments sold, net of amounts due to the Croatian State.

Cash and cash equivalents

Cash comprises cash held at banks and on hand. Cash equivalents include demand deposits and time deposits with maturities up to three months.

Debtors and creditors

Accounts receivable and payable are stated at their face value. Receivables have been written down to their estimated realisable value through an allowance for bad and doubtful accounts.

Inventories

Inventories are stated at the lower of cost (substantially FIFO) and net realisable value. Cost includes materials, labour and manufacturing overhead.
Slow-moving and obsolete inventories have been written down to their estimated realisable value.

Deferred taxation

Deferred tax asset and liabilities are recognised using the liability method in respect of deductible temporary timing differences.

Foreign currencies

Transactions denominated in foreign currencies are translated into local currency at the rate prevailing at the date of the transaction. Foreign currency receivables and payables at the balance sheet date have been translated at the year-end exchange rate. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included in the income statement.

Recognition of revenues

Sales revenue is recorded upon delivery of products, software and services according to contractual terms and represents amounts realised, excluding value-added tax.

For longer term contracts, revenue is recognised according to stage of completion. If the cost required to complete such contracts is estimated to exceed remaining revenues, provision is made for estimated losses in the period in which such loss is estimated.

 Sales income

Out of total sales of HRK 1,039 million, sale of products amounted to HRK 663 million (1999, HRK 777 million) and services amounted to HRK 376 million (1999, HRK 168 million).