Integrated Annual Report of LOTOS Capital Group 2015

PLN '000	Dec 31 2015	Dec 31 2014
Finished goods	863,428	1,184,960
Semi-finished products and work in progress	319,533	556,424
Merchandise	116,801	223,540
Materials	1,936,054	1,952,205
Total	3,235,816	3,917,129
including inventories measured at:
cost	493,696	469,201
net realisable value	2,742,120	3,447,928

Inventories are measured at the lower of cost or cost less write-downs to net realisable value less costs to sell.

Following a change in prices of crude oil and refining products in 2015, in H1 2015 the Group reversed inventory write-downs recognised in Q4 2014, and in Q3 and Q4 2015 the Group recognised a write-down to adjust the carrying amount of inventory to the net realisable value, in accordance with IAS 2 (see Note 19.1).

As at December 31st 2015, carrying amount of inventories securing liabilities under borrowings was PLN 2,734,698 thousand (December 31st 2014: PLN 3,330,652 thousand).

19.1 Change in inventory write-downs

PLN '000	Year ended Dec 31 2015	Year ended Dec 31 2014
At beginning of period	453,409	2,919
Recognised	267,840	451,551
Exchange differences on translating foreign operations	21	1
Used	(328)	(892)
Reversed	(453,247)	(170)
At end of period	267,695	453,409
including:
Finished goods	62,906	200,340
Semi-finished products and work in progress	28,712	40,913
Merchandise	34,089	5,834
Materials	141,988	206,322

The effect of revaluation of inventories is taken to cost of sales.

19.2 Mandatory stocks

The Group maintains mandatory stocks as required by the following acts:

• Act on Stocks of Crude Oil, Petroleum Products and Natural Gas, and on the Rules to be Followed in the Event of Threat to National Fuel Security or Disruptions on the Petroleum Market of February 16th 2007 (Dz.U. of 2007, No. 52, item 343, dated March 23rd 2007, as amended).
• Regulation of the Minister of Economy, Labour and Social Policy, on fuel stocks at power utility companies, dated February 12th 2003 (Dz.U. No. 39, item 338, as amended).

These regulations define the rules for creating, maintaining and financing stocks of crude oil, petroleum products and fuels at power utility companies. 

The Group’s mandatory stocks include crude oil, petroleum products (liquid fuels), LPG and coal. In the downstream segment, mandatory stocks are maintained mainly by the Parent. As at December 31st 2015, the carrying amount of mandatory stocks was PLN 1,881,494 thousand (December 31st 2014: PLN 2,243,655 thousand).