Gains and losses on disposals are determined by

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Gains and losses on disposals are determined by compar- ing the proceeds with the carrying amount and are recog- nised in the income statement. Cost comprises acquisition price and expenses directly related to the acquisition until the time when the asset is ready for use. The cost of self-constructed assets compris- es direct expenses for wage consumption and materials. Borrowing costs related to financing self-constructed assets that take a substantial period of time to complete and whose commencement date is on or after 1 January 2009 are included in the cost price. Leases Leases of assets where the LEGO Group has substantially all risks and rewards of ownership are capitalised as finance leases under property, plant and equipment and depreciat- ed over the estimated useful lives of the assets, according to the periods listed under the section property, plant and equipment. The corresponding finance lease liabilities are recognised in liabilities. Operating lease expenses are recognised in the income statement on a straight-line basis over the period of the lease. Impairment of assets Assets that are subject to depreciation and amortisation are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets under development are tested for impairment at each reporting date. Note 1 (continued) 21 Notes The LEGO Group — Annual Report 2017
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An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of the fair value of an asset less expenses to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifia- ble cash flows (cash generating units). Inventories Inventories are measured at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. The cost of raw materials, consumables and purchased goods comprises the invoice price plus delivery expenses. The cost of finished goods and work in progress comprises the purchase price of materials and direct labour costs plus indirect production costs. Indirect production costs include indirect materials and wages, maintenance and deprecia- tion of plant and machinery, factory buildings and other equipment as well as expenses for factory administration and management. Other receivables and prepayments Other receivables and prepayments recognised under assets include VAT, financial instruments, royalty and prepaid expenses on leases. Trade receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost less write down for losses. Provisions for losses are made based on an objective indication if an individual receivable or a portfolio of receivables is impaired.
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