The financial statements for Kongsberg Gruppen ASA have been prepared in accordance with the provisions of the Norwegian Accounting Act of 1998 and generally accepted accounting practices in Norway.

Subsidiaries/associates

Subsidiaries and associates are measured using the cost method of accounting in the parent company accounts. The investment is valued at the acquisition cost of the shares unless impairment loss has been necessary. Such assets are impaired to fair value when the decrease in value is not considered to be of a temporary nature and must be deemed necessary based on generally accepted accounting principles. Impairment loss is reversed when the reason for the impairment no longer applies.

Dividends and other disbursements are recognised as income in the same year as they are set aside by the subsidiary.

Classification and valuation of balance sheet items

Current assets and short-term liabilities include items that fall due for payment within one year after the date of acquisition, as well as items associated with commodity flows. Other items are classified as fixed assets/non-current liabilities.

Current assets are valued at cost or fair value, whichever is lower. Current liabilities are recorded at their nominal values on the date they are incurred.

Fixed assets are valued at acquisition cost less depreciation, but are impaired to fair value when the decrease in value is not expected to be of a temporary nature. Non-current liabilities are recognised on the balance sheet at nominal amounts at the time the debt is incurred.

Receivables

Trade and other receivables are recognised on the balance sheet at nominal amounts less provisions for expected losses. Provisions for bad debts are made on the basis of individual risk assessments of the individual debts. In addition, a general provision is made to cover potential losses on other trade receivables.

Foreign exchange

Financial items in foreign currencies are translated based on exchange rates at the close of the fiscal year.

Short-term investments

Short-term investments (shares and units considered current assets) are valued at acquisition cost or fair value on the date of balance sheet recognition, whichever is lower. Dividends and other allocations of profit from the companies are reported under "Other financial income".

Pensions

Pension expenses and pension liabilities are calculated using linear accrual based on estimated salary level at retirement. Pension expenses and pension liabilities are based on assumptions regarding discount rates, future salary adjustments, pensions and benefits in respect of the National Insurance Scheme and future interest income on pension fund assets, as well as on actuarial assumptions regarding mortality and turnover. Pension fund assets are assessed at their fair value, less net pension liabilities on the balance sheet.

As from 2005, actuarial gains/losses have been recognised directly in equity.

Income tax

Tax expenses in the income statement include payable taxes and the change in deferred taxes during the period. Deferred taxes are estimated as 28 per cent of the basis for the temporary differences that arise between balance sheet items used for accounting purposes and those used for tax purposes, as well as the assessment-related deficit to be carried forward at the end of the fiscal year. Temporary differences that increase or decrease taxes and have been reversed or can be reversed during the same period, are assessed. Net deferred tax assets are recognised on the balance sheet to the extent it is likely that they can be applied.

Statement of cash flows

The statement of cash flows has been drawn up using the indirect method. Cash encompasses cash reserves, bank deposits and other short-term liquid assets.