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DES GB2015 Englisch

Level 3: The measurement models used for this level are based on parameters that are not observable on the market. In the case of financial instruments that are recognised at fair value on a regular basis, it is determined based on a reassessment at the end of the financial year whether reclassifications between the hierarchi- cal levels occurred. For financial instruments measured at amortised cost, fair value is determined based on the expected payment flows using the benchmark interest rates for matching risk and maturities at the balance sheet date. A. DERIVATIVE FINANCIAL INSTRUMENTS Derivatives that qualify for hedge accounting in accordance with IAS 39 are used to hedge interest rate risks. These are fixed-rate swaps to limit the interest rate risk of variable interest rate loans, which have terms extending to 2026. The interest rate hedges are recognised at fair value (recurring fair value measurement) under “Other assets” or “Other liabilities”. Changes are recognised directly in equity, provided that the conditions of the underlying and hedge transaction are iden- tical. Hedge effectiveness tests are conducted regularly. If the effec- tiveness between the hedged item and the hedge does not exist, the hedge is measured as a derivative at fair value in profit or loss. Pres- ent value is calculated based on discounted cash flows using current market interest rates. The final maturities of the interest rate hedges and loan agreements are identical. B. NON-CURRENT FINANCIAL ASSETS Non-current financial assets are classified as available for sale and include an investment in a Dutch corporation that is a joint venture controlled by Deutsche EuroShop jointly with partner companies. As Deutsche EuroShop, under the provisions of the shareholders’ agree- ment, exercises neither significant influence nor control over this com- pany, the investment is measured at fair value (recurring fair value measurement) in line with the provisions of IAS 39. C. RECEIVABLES AND OTHER CURRENT ASSETS Receivables and other current assets are recognised at amortised cost less write-downs. Allowances are established for trade receivables if it is no longer certain that payment will be received. This is reviewed on a case-by-case basis at the balance sheet date. They are written off if the receivable becomes uncollectable. D. RIGHT TO REDEEM OF LIMITED PARTNERS The distinction between equity and liabilities under international ac- counting standards is set out in IAS 32 Financial Instruments: Presenta- tion. In accordance with this standard, the equity interests of third-party shareholders in commercial partnerships are reclassified as liabilities due to the shareholders’ potential right of redemption. According to sec- tions 131 et seq. HGB, shareholders in commercial partnerships have an ordinary legal right of termination of six months with effect from the end of the financial year, which the shareholders’ agreement can define from a long-term perspective, but cannot exclude. As a result of this stipulation, a liability rather than equity is recognised in the bal- ance sheet. This liability must be measured at fair value. E. FINANCIAL LIABILITIES Liabilities to banks/bank loans and overdrafts are reported at amor- tised cost. Discounts are deducted, which under IAS 39 must be am- ortised over the term of the loan agreement and recognised annually as an expense. The debt component of convertible bonds is measured using the mar- ket interest rate for a similar, non-convertible bond. This debt component is measured as a liability at amortised cost using the effective interest method until converted or repayment becomes due. The remaining proceeds from the issue represent the value of the conversion rights. This is recognised in equity within the capital reserves. The financial liability increases over time, with an effect on net income, and comes to an amount equalling the difference between the actual interest expense and the nominal interest rate. 154 Deutsche EuroShop AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS

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