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2 Summary of significant accounting policies

General

Significant financial statement reporting policies which are not prescribed by law are described below. The ability to create and release hidden reserves for the purpose of ensuring the sustainable development of the company should be taken into account in this respect.

Participations and recording of dividend distributions by subsidiary companies

Participations are accounted for at acquisition cost less valuation allowances, as required. Dividend distributions from subsidiary companies are accrued in the financial statements of Swisscom Ltd provided that the annual general meetings of the subsidiary companies approve the payment of the dividend prior to the approval of the Annual Financial Statements of Swisscom Ltd by the Board of Directors.

Treasury shares

At the time of acquisition, treasury shares are recorded at purchase cost as a reduction of shareholders’ equity. In the event of a subsequent disposal, the resultant gain or loss is taken to income as financial income or financial loss, respectively. The balance of and transactions in treasury shares are disclosed in Note 31 to the Consolidated Financial Statements.

Share-based payments

Should treasury shares be used for share-based payments to members of the Board of Directors and employees, the difference between the acquisition cost and any respective payment to the employees represents personnel expense as at the time the shares are allocated. Share-based payments of Swisscom Ltd are detailed in Note 11 to the Consolidated Financial Statements.

Derivative financial instruments and hedge accounting

Derivative financial instruments which are deployed to hedge foreign currencies and interest rates, are measured at market price. Movements in market prices are recorded in the income statement. Derivatives which meet the conditions of a hedging transaction, are measured using the same valuation principles as those which apply to the underlying transaction. Gains and losses arising from the underlying and hedging transactions are dealt with on a joint basis (combined valuation perspective with regard to valuation units).