Investments: converting accounts from LOCOM to fair value basis Orkla a.s., one of Norway’s largest listed companies, has three main areas of activity: branded consumer goods, chemicals and financial investments. Its portfolio of investments, with a book value of NOK 11,400 million, represents over 20% of the group’s end-2001 assets. The company classifies the portfolio investments as a current asset and accounts for them at the lower of portfolio cost or market.

However, it provides market value information in the notes to the accounts. Set out below are key data from its 2001 accounts. Amounts are in NOK million.

2001 2000 1999 Income statement Operating revenues 44,799 34,083 31,492 Operating profit 3,260 2,607 2,177 Dividends 545 555 325 Portfolio gains/(losses)* (760) 2,727 595 Other financial items, net 208 (718) (778)

Profit before tax 3,253 5,171 2,319

* These comprise gains and losses on disposal of investments and asset write-downs.

2001 2000 1999 1998 Notes to the accounts Securities portfolio Market value 14,140 18,053 20,875 12,624 Book value 11,394 12,622 11,340 8,495 Unrealised gains before tax 2,746 5,431 9,535 4,129 Required What is the profit before tax Orkla would have reported in the three years 1999–2001 if it had accounted for its securities portfolio at fair value? What do the fair value-based profit numbers reveal about the performance of its financial investments division in these years?

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