Purchase method of accountin g (IFRS 3) The purchase method of accountin g is used to account for the acquisitions of subsidiaries and oper ations b y the Group . F or acquisitions made before 2010, the cos t of an acquisition is measured at the fair v alue of the assets g iv en, equit y ins truments issued and liabilities incurred or assumed at the date of e x chan g e , plus cos ts directly at tribut able to the acquisition. Identif - able assets acquired and liabilities and contin g ent liabilities assumed in a business combination are measured initially at their fair v alues at the acqui - sition date , irrespectiv e of the e xtent of an y non-controllin g interes t . F or acquisitions made as from 2010, all pa yments to acquire a business are recor ded at fair v alue at the acquisition date , with contin g ent consider ations and acquisition related option liabilities, classifed as debt subsequently re-measured throug h the s t atement of income . There is a choice on an acquisition-b y -acquisition basis to measure the non-controllin g interes t in the acquiree at fair v alue or at the non-controllin g interes t’ s proportionate share of the acquiree ’ s net assets. All acquisition related tr ansaction cos ts are e xpensed. These cos ts are in the Group accounted for on a line in the s t ate - ment of income named acquisition related cos ts. Cos ts accounted for on this line are tr ansaction cos ts, re v aluation (includin g discountin g ) of contin g ent consider ations and acquisition related option liabilities, re v aluation to fair v alue of pre viously acquired shares in s tep acquisitions and acquisition related res tructurin g and inte gr ation cos ts. F or all acquisitions, the e x cess of the cos t of acquisition o v er the fair v alue of the Group ’ s share of the identifable net assets acquired is recor ded as g oodwill. If the cos t of acquisition is less than the fair v alue of the net assets of the subsidiar y acquired, the diference is recogniz ed directly in the consoli - dated s t atement of income . The consolidated fnancial s t atements include companies acquired with efect from the date that the Group obt ains control. Companies div es ted are e x cluded with efect from the date that the Group ceases to ha v e control. Pricin g of deliv eries amon g Group companies is based on normal business principles. Inter -compan y tr ansactions, balances and unrealiz ed gains bet w een Group companies are eliminated. u nrealiz ed losses are also eliminated unless the tr ansaction pro vides e vidence of an impairment of the asset tr ansferred. Non-controllin g interes ts (IAS 27) F or acquisitions made before 2010, the Group has adopted the principle of treatin g tr ansactions with non-controllin g interes ts as tr ansactions with par - ties outside the Group . Acquisitions of non-controllin g interes ts g iv e rise to g oodwill that is determined as the diference bet w een the purchase price paid and the acquired share of the book v alue of the subsidiaries ’ net assets. f or acquisitions made as from 2010 the Group treats tr ansactions with non-controllin g interes ts as tr ansactions with equit y o wner s of the Group . F or acquisitions from non-controllin g interes ts, the diference bet w een an y consider ation paid and the rele v ant share acquired of the carr yin g v alue of net assets of the subsidiar y is recor ded in equit y . Gains or losses on disposals to non-controllin g interes ts are also recor ded in equit y . When the Group ceases to ha v e control, an y ret ained interes t in the entit y is remeasured to its fair v alue , with the chan g e in carr yin g amount recogniz ed in the s t atement of income . The fair v alue is the initial carr yin g amount for the purposes of subsequently accountin g for the ret ained interes t . In v es tments in associates (IAS 28) The equit y method is used to account for shareholdin g s that are neither sub - sidiaries nor joint v entures, but where Securit as can e x ert a signifcant infu - ence , g ener ally accompan yin g a shareholdin g of bet w een 20 percent and 50 percent of the v otin g rig hts. F or acquisitions made before 2010, the cos t of an acquisition is measured at the fair v alue of the assets g iv en, an y contin g ent consider ations and acquisition related option liabilities that ha v e been es timated, equit y ins truments issued and liabilities incurred or assumed at the date of e x chan g e , plus cos ts directly at tribut able to the acquisition. Identifable assets acquired and liabilities and contin g ent liabili - ties assumed as a result of the acquisition are measured initially at their fair v alues at the acquisition date . The acquisition of the associated companies Lon g Hai Securit y Ser vices Joint Stock Compan y (Lon g Hai) and W alson Ser vices P vt L td (W alsons) took place before 2010, and are consequently accounted for as per abo v e . F or acquisitions made as from 2010, all pa yments to acquire a business are recor ded at fair v alue at the acquisition date , with contin g ent consider - ations and acquisition related option liabilities classifed as debt subse - quently re-measured throug h the s t atement of income . All acquisition related tr ansaction cos ts are e xpensed. F or all acquisitions, the e x cess of the cos t of acquisition o v er the fair v alue of the Group ’ s share of the identifable net assets acquired is at tributed to g oodwill, which is included in in v es tments in associated companies in the consolidated balance sheet . If the cos t of acquisition is less than the fair v alue of the net assets of the associated compan y acquired, the diference is recogniz ed directly in the consolidated s t atement of income . The consolidated fnancial s t atements include associated companies with efect from the date of the acquisition. Associated companies div es ted are e x cluded with efect from the div es tment date . If the o wner ship interes t in an associate is reduced but signifcant infuence is ret ained, only a propor - tionate share of the amounts pre viously recogniz ed in other comprehensiv e income are reclassifed to the s t atement of income where appropriate . Inter -compan y tr ansactions, balances and unrealiz ed gains bet w een the Group and its associated companies are eliminated to the e xtent of the Group ’ s interes t in the associate . u nrealiz ed losses are also eliminated unless the tr ansaction pro vides e vidence of an impairment of the asset tr ansferred. Share in income of associated companies is recogniz ed in the consoli - dated s t atement of income . Dependin g on the purpose of the in v es tment share in income of associated companies is included either in oper atin g income , if it is related to associated companies that ha v e been acquired to contribute to the oper ations (oper ational), or in income before t ax es as a separ ate line within net fnancial items, if it is related to associated compa - nies that ha v e been acquired as part of the fnancin g of the Group (fnancial in v es tments). In both cases the share in income of associated companies are net of t ax. The associated companies Lon g h ai and W alsons are classi - fed as oper ational associates. The Group currently has no associated com - panies that are accounted for as fnancial in v es tments. In the consolidated balance sheet , in v es tments in associated companies are s t ated at cos t includin g the cos t of the acquisition that is at tributed to g oodwill, adjus ted for dividends and the share of income after the acquisi - tion date (see note 21). Joint v entures (IAS 31) The proportional method is applied to joint v entures in which there is a shared controllin g interes t . Accor din g to this method, all s t atement of income and balance sheet items are s t ated in the consolidated s t atement of income , the consolidated s t atement of cash fo w and the consolidated balance sheet in proportion to o wner ship . The proportional method of consolidation is used with efect from the date when a shared controllin g interes t is achie v ed and up until a shared controllin g interes t ceases to e xis t . The Group has used the proportional method to account for its in v es tment in Securit as Direct S . A . (S witz erland) up to the div es titure of this compan y on October 21, 2011 (see note 7). T r anslation of foreign subsidiaries (IAS 21) The functional currenc y of each Group compan y is determined b y the pri - mar y economic en vironment in which the compan y oper ates, that is the currenc y in which the compan y primarily g ener ates and e xpends cash. The functional currenc y of the Parent Compan y and the present ation currenc y of the Group , that is the currenc y in which the fnancial s t atements are presented, is S w edish kronor (SEK). The fnancial s t atements of each foreign subsidiar y are tr anslated accor din g to the follo win g method: Each month ’ s s t atement of income is tr anslated usin g the e x chan g e r ate pre v ailin g on the las t da y of the month, which means that income for each month is not afected b y foreign e x chan g e fuctuations durin g subsequent periods. B alance sheets are tr anslated usin g e x chan g e r ates pre v ailin g at each balance sheet date . T r anslation diferences arisin g in the con v er sion of balance sheets are pos ted directly to other comprehensiv e income and thus do not afect net income for the y ear . The tr anslation difer - 76 Annual R eport Notes and comments to the consolidated fnancial s t atements Securit as Annual R eport 2012