Question

Stora Enso is a Finnish pulp and paper manufacturing company. It discloses in its 1999 consolidated Annual Report, the following items:

Excerpted from the Consolidated balance sheet

Assets
€ mill.	1999	1998
(…)
Shares, associated companies	165.5	334.1
Shares, other companies	280.4	128.8

In the notes to its financial statements, the Stora Enso provides explanations relating to these two items:

Excerpts from the notes

Note 12 Associated companies
€ mill.	1999	1998
Historical cost Jan. 1	289.9	273.1
Translation difference	1.8	-14.8
Additions	20.2	42.3
Disposals	-36.8	-1.2
Transfers to other companies	-141.9	-9.4
Historical cost Dec. 31	133.2	290.0
Equity adjustments to investments in associated companies Jan. 1	44.2	44.8
Equity earnings in associated companies	9.7	10.0
Translation difference	-27.3	-0.1
Dividends received during the year	-3.1	-7.2
Taxes	-2.4	-2.6
Disposals and other changes	11.2	-0.7
Equity adjustments Dec. 31	32.3	44.2
Carrying value of investments in associated companies on Dec. 31	165.5	334.2
Note 14 Shares in other companies
€ mill.	1999	1998
Acquisition cost Jan. 1	128.8	57
Translation differences	0.5	-1.1
Additions	13.4	68.8
Disposals	-7.1	-4.8
Write-downs	3	-0.5
Transfers from associated companies	141.9	9.4
Carrying amount Dec. 31	280.4	128.8

In addition, the company explains in the notes that “associated companies (voting rights between 20% and 50%) are consolidated using the equity method” and “the income statements of foreign subsidiaries are translated into Euros using the average rate for the accounting period. The balance sheets of foreign subsidiaries are translated using the rate prevailing on the balance sheet day.”

Pechiney, a French group operating worldwide in aluminum and packaging materials, discloses in its 1999 Annual Report the following note:

Note 7 – Investments in Equity Affiliates
(in millions of €)	1999	1998	1997
Beginning of period	334	337	354
Changes:
- Equity in net income of Quensland Alumina Limited, Pechiney Reynolds Québec Inc. and in partnerships	7	7	10
- Equity in net income of other affiliates	41	10	20
- Dividends received from equity affiliates	(12)	(12)	(20)
- New investments or share capital increases	-	-	42
- Divestments and reduction in ownership percentage	(73)	-	(71)
- Change from equity method to consolidation	-	-	(9)
- Change from consolidation to equity method	457	-	7
- Translation adjustment	22	(10)	5
- Other	1	2	(1)
End of period	777	334	337

Required

1. A) Using the Stora Enso data

1. Associated companies: explain the computation of the historical cost at year-end and the meaning of each component of this computation.
2. Where will be found, other than in the notes, the carrying value of associated companies at year-end?
3. Other companies: explain the computation of carrying amount at year-end and the meaning of each component of this computation.
4. Double-check the carrying value of other companies at year-end. What is the usefulness to an investor or shareholder of the 1999 figure of €280.4 millions shown both in the balance sheet and in the notes?

1. B) Comparison: notes 12 and 14 in Stora Enso’s annual report and note 7 in Pechiney’s annual report have the same purpose. Compare and contrast the computations and reporting choices made by each company.

Answer 1