AIRBUS - 2019 Financial Statements

2.1 Basis of Preparation Notes to the IFRS Consolidated Financial Statements /

with the underlying programme status. An estimate of the related contract costs is made, which requires significant and complex assumptions, judgements and estimates related to achieving certain performance standards as well as estimates involving warranty costs (see “– Note 3: Key Estimates and Judgements”, “– Note 11: Revenue and Gross Margin” and “– Note 24: Provisions, Contingent Assets and Contingent Liabilities”). Research and development expenses — The costs for internally generated research are expensed when incurred. The costs for internally generated development are capitalised when: – the product or process is technically feasible and clearly defined ( i.e. the critical design review is finalised); – adequate resources are available to successfully complete the development; – the benefits from the assets are demonstrated (a market exists or the internal usefulness is demonstrated) and the costs attributable to the projects are reliably measured; – the Company intends to produce and market or use the developed product or process and can demonstrate its profitability. Income tax credits granted for research and development activities are deducted from corresponding expenses or from capitalised amounts when earned. Capitalised development costs , are recognised either as intangible assets or, when the related development activities lead to the construction of specialised tooling for production (“jigs and tools”), or involve the design, construction and testing of prototypes and models, as property, plant and equipment. Capitalised development costs are generally amortised over the estimated number of units produced. If the number of units produced cannot be estimated reliably, they are amortised over the estimated useful life of the internally generated intangible asset. Amortisation of capitalised development costs is recognised in cost of sales. Inventories are measured at the lower of acquisition cost (generally the average cost) or manufacturing cost and net realisable value. Manufacturing costs comprise all costs that are directly attributable to the manufacturing process, such as direct material and labour, and production related overheads (based on normal operating capacity and normal consumption of material, labour and other production costs), including depreciation charges. Net realisable value is the estimated selling price in the ordinary course of the business less the estimated costs to complete the sale. Transactions in foreign currency , i.e. transactions in currencies other than the functional currency of an entity of the Company, are translated into the functional currency at

the foreign exchange rate prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currencies at the end of the reporting period are remeasured into the functional currency at the exchange rate in effect at that date. Except when deferred in equity as qualifying cash flow hedges (see “– Note 37: Information about Financial Instruments”), these foreign exchange remeasurement gains and losses are recognised, in line with the underlying item: – in profit before finance costs and income taxes if the substance of the transaction is commercial (including sales financing transactions); and – in finance costs for financial transactions. Non-monetary assets and liabilities denominated in foreign currencies that are stated at historical cost are translated into functional currency at the foreign exchange rate in effect at the date of the transaction. Translation differences on non-monetary financial assets and liabilities that are measured at fair value are reported as part of the fair value gain or loss. However, translation differences of non-monetary financial assets measured at fair value and classified as fair value through other comprehensive income (“OCI”) are included in accumulated other comprehensive income (“AOCI”). Hedge accounting — Most of the Company’s revenue is denominated in US dollar (“US$”), while a major portion of its costs are incurred in euro. The Company is significantly exposed to the risk of currency changes, mainly resulting from US$/€ exchange rates. Furthermore, the Company is exposed, though to a much lesser extent, to foreign exchange risk arising from costs incurred in currencies other than the euro and to other market risks such as interest rate risk, commodity price and equity price risk. In order to manage and mitigate those risks, the Company enters into derivative contracts. The Company applies hedge accounting to its derivative contracts whenever the relevant IFRS criteria can be met. Hedge accounting ensures that derivative gains or losses are recognised in profit or loss (mainly in revenue) in the same period that the hedged items or transactions affect profit or loss. The major portion of the Company’s derivative contracts is accounted for under the cash flow hedge model. The fair value hedge model is used only for certain interest rate derivatives. Derivative contracts which do not qualify for hedge accounting are accounted for at fair value through profit and loss; any related gains or losses being recognised in financial result. The Company’s hedging strategies and hedge accounting policies are described in more detail in “– Note 37: Information about Financial Instruments”.

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Airbus / Financial Statements 2019