Selected accounting policies – Note 4

As of 1 January 2018, the Group applies the IFRS 15 rules while incorporating the 5 steps model in reference to the analysis concerning the recognition of revenues from contracts with clients.

Requirements for identifying a contract with a customer

A contract with a client fulfills its definition when all of the following criteria are satisfied: the parties to the agreement have entered into the contract and are obligated to discharge their duties; the Group is capable of identifying the rights of each of the parties concerning the goods or services to be transferred; the Group is capable of identifying the terms of payment for the goods or services that are to be transferred; the contract has economic content and it is probable that the Group will receive the consideration that will be due to it in consideration for the goods or services that will be transferred to the client.

Identification of performance obligations

At the time of executing the contract the Group assesses the goods or services promised in the contract with the client and identifies every promise of making a transfer to a client as a performance obligation: the transfer of a good or service (or a packet of goods or services), which are distinguished or groups of individual goods or services that are basically identical and with respect to which the transfer to a client is of the same nature and occurs over time.

Determination of the transaction price

To determine the transaction price, the Group takes into account the conditions of the contract and the customary trade practices applied by the company. The transaction price is the amount of consideration that – according to the Group’s expectation – will be due to it in consideration for the transfer of the goods or services promised to a client, net of the amounts collected on behalf of third parties (for example, some sales taxes). The consideration specified in the contract with a client may include fixed amounts, variable amounts or both types of amounts.

Some contracts with the Group’s counterparties comprise provisions on qualitative adjustments constituting the basis for calculating the final sales price, or certain forms of rewarding the customer. If it is highly unlikely that a large part of the cumulative revenues are reversed in the future then, in such cases, under IFRS 15, the amount of the variable compensation is taken into account in the transaction price. A follow-up assessment of variable compensation should be performed at the end of each reporting period.

Allocation of the transaction price to the various performance obligations

The Group assigns a transaction price to every performance obligation (or to an individual good or an individual service) in an amount that reflects the amount of consideration that – according to the Group’s expectation – is due to it in consideration for the transfer of the goods or services promised to a client.

Recognition of revenue at the time of fulfilling the performance obligations

The Group recognizes revenue at the time of fulfillment (or in the course of fulfillment) of the performance obligation through the transfer of the good or service (i.e. the asset) promised to the client (the client obtains control over this asset). The revenues are recognized as amounts equal to the transaction price assigned to a given performance obligation.

In addition to the above accounting policies concerning the recognition of revenues, the main contracts concerning the sale of coal and coke (which represent 97% of total sales revenues) the Group also uses international trade rules, i.e. INCOTERMS (FCA, DAP, FOB). The moment of passing control over the promised goods and services to the customer is shown precisely in each delivery rule.

Based on the terms of deliveries applicable to most contract, the Group concluded that the moment of passing control to the customer takes place when the goods are delivered to the client or handed over to the carrier and completion of the transportation service, if any. In such a case, the asset is generally physically delivered or its title is transferred to the recipient or significant risks and rewards associated with the asset sold are handed over to the recipient. In such cases, pursuant to IFRS 15, all goods and services (transport services) promised in the contract should be treated as a single performance obligation and the revenue should be recognized once at a specified time.

In the comparative period, the Group recognized revenues on sales at fair value of the payment received or receivable on account of sale of products, goods, materials or services in the ordinary course of the Company’s business, taking into account the rebates granted and other sales price reductions.

Costs are recognized in the consolidated statement of profit or loss and other comprehensive income, on the basis of the direct relation between the costs incurred and the specific income earned, i.e. using the commensurability principle, through the account of prepaid and accrued expenses. The Group keeps full records of costs, i.e. the costs are captured by type and by business segments. The Group presents a division of costs captured in the financial result by function of expenditure.