## SECTION 1.3 Operating expenses, inventory and deposit liability 

It is Group policy to secure delivery of malt and hops for the coming budget year, and the main part of the exposure for 2013 was thus hedged through fixed-price purchase agreements for the majority of the Group in 2012. The percentage which is hedged or price-fixed is higher for Western Europe than for Eastern Europe. 

## 1.3.1 ACCOUNTING POLICIES 

Cost of sales comprises costs of products sold during the year, indirect production overheads not allocated to specific products (IPO) and development costs. 

Own-produced finished goods and work in pro- gress are measured at standard cost comprising the cost of raw materials, consumables, direct labour and indirect production overheads. Indirect production overheads comprise indirect supplies, wages and salaries, amortisation of trademarks and software as well as maintenance and depre- ciation of machinery, plant and equipment used for production and costs of production, adminis- tration and management. 

The cost of purchased finished goods, raw and packaging materials and point-of-sale materials includes any costs that are related directly to bringing inventories to the relevant place of sale and getting them ready for sale, e.g. purchase cost, insurance, freight, duties and similar costs. 

Inventories are measured at the lower of standard cost (own-produced finished goods) and weighted average cost (other inventories) and net realis- able value. The net realisable value of inventories is calculated as the selling price less costs of completion and costs necessary to make the sale and is determined taking into account marketabil- ity, obsolescence and developments in expected selling price. 

The cost of scrapped/impaired goods is expensed within the function (line item) responsible for the loss, i.e. losses during distribution are included in the cost of distribution while the scrapping of products due to sales not meeting forecasts is included in sales expenses. 

## 1.3.2 Deposit liabilities on returnable packaging 

In a number of countries, the local entities have a legal or constructive obligation to take back returnable packaging from the market. When invoicing customers, the entity adds a deposit to the sales price and recog- nises a deposit liability. The deposit is paid out on return of bottles, cans etc. 

The deposit liability amounted to DKK 1,630m (2012: DKK 1,381m) at 31 December 2013, while the value of returnable packag- ing materials amounted to DKK 2,001m (2012: DKK 1,727m). The capitalised value of returnable packaging materials exceeds the deposit liability as each of the return- able packaging items circulates a number of times in the market. The deposit liability was almost unchanged compared to the liability at the end of 2012 except for the effect of the Chongqing acquisition, which increased the deposit liability. 

## 1.3.2  SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS 

Management assesses the local busi- ness model, contracts and agreements, the level of control over the returnable packaging material and the return rate to determine the accounting treatment of the packaging material as either prop- erty, plant and equipment or inventory. 

The deposit liability provided for is esti- mated based on movements during the year in recognised deposit liabilities and on historical information about return rates and loss of bottles in the market as well as planned changes in packaging types. 

## 1.3.2 ACCOUNTING POLICIES 

The obligation to refund deposits on returnable packaging is stated on the basis of deposit price as well as an estimate of the number of bottles, kegs, cans and crates in circulation and expected return rates. 

The accounting policy for returnable packaging capitalised as property, plant and equipment is described in section 2.4. 

