Net working capital

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Work in progress and Finished goods are measured at cost including indirect production costs. The indirect production costs capitalized under inventories amounted to DKK 862 million at the end of 2017 (2016: DKK 815 million). The indirect production costs are assessed on an ongoing basis to ensure reliable measurement of employee costs, capacity utilization, cost drivers and other relevant factors. Changes in these parameters may have an impact on the gross margin and the overall valuation of Work in progress and Finished goods.

ACCOUNTING POLICIES

Inventories are measured at cost determined on a first-in first-out basis or net realizable value where this is lower.

The cost of Work in progress and Finished goods comprises direct production costs such as raw materials and consumables, energy and labor directly attributable to production as well as indirect production costs such as employee costs, maintenance and depreciation of plants, etc.

If the expected sales price less any completion costs and costs to execute sales (net realizable value) of inventories is lower than the carrying amount, the inventories are written down to net realizable value.

Novozymes has entered into a few agreements where Novozymes supplies goods to a customer’s premises but retains title to the inventory until the goods are consumed in the customer’s production. Such goods are derecognized from inventories in the period that they are consumed in the customer's production.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Allowances for doubtful trade receivables are made by Management when a loss has occurred due to expected inability of customers to make required payments. These allowances are estimated by Management based on an individual assessment of each receivable that includes the period overdue, payment history, changes to payment terms and the likelihood of receiving payments. This analysis is combined with an overall assessment of the total allowance compared with the outstanding trade receivable balance. The allowance for trade receivables is estimated based on the most recent information about the creditworthiness of the customers. If the financial circumstances of or surrounding the customers change in future periods, an additional allowance could be required.

ACCOUNTING POLICIES

Trade receivables are measured at amortized cost or net realizable value equivalent to nominal value less allowances for doubtful receivables, whichever is lower. The cost of allowances for doubtful trade receivables is included in Sales and distribution costs.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Assessing the earnings process and the underlying deliverables for The BioAg Alliance requires judgment and is based on estimates of the future. These estimates are by nature subject to a high degree of uncertainty, and changes in such estimates may impact the timing of revenue recognition in future periods.

ACCOUNTING POLICIES

Deferred income reflects the portion of payments received that relates to future periods and deliverables, and for which the criteria for revenue recognition are not yet met. Deferred income is measured at nominal value.