The section below gives details of the important accounting policies used for consolidation, valuation of assets and liabilities, and determining the Group’s result.

These principles have been applied consistently for all the periods presented in these consolidated financial statements, unless otherwise indicated.

Pursuant to Section 402, paragraph 1, Part 9, Book 2 of the Dutch Civil Code, an abridged income statement is included in the company financial statements of NV Nederlandse Spoorwegen.

The financial statements are presented in euros (the functional currency), rounded to the nearest million. The financial statements have been prepared on the basis of historical cost, unless reported differently. The figures for the previous year have been adjusted in order to make comparison possible.

The Group has applied the accounting policies for financial reporting as explained below consistently for 2016 in these consolidated financial statements.

As of 1 January 2016, the Group has adopted the following new standards and amendments to standards, including all consequent changes deriving from them in other standards. These new standards have not resulted in important changes in the way the accounting policies are applied.

• Equity method in company financial statements (amendment to IAS 27)

• Disclosure initiative (amendments to IAS 1)

• Annual IFRS improvement cycles 2012-2014

• Clarification of accepted methods for depreciation and amortisation (amendments to IAS 16 and IAS 38)

• Processing the acquisition of interests in joint operations (amendment to IFRS 11)

New standards and amendments to standards that are mandatory from 2017 or later

The Group has not voluntarily opted for the early adoption of any new standards or amendments to existing standards or interpretations that are only mandatory with effect from the financial statements for 2017 or later.

The Group is currently investigating the consequences of the following new standards, interpretations and amendments to existing standards, the application of which is mandatory with effect from the financial statements for 2017, or later where specified:

IFRS 9 — Financial instruments

IFRS 9, published in July 2015, replaces the current regulations of IAS 39, Financial instruments: Inclusion and Valuation. IFRS 9 contains revised regulations relating to the classification and valuation of financial instruments, including a new anticipated credit loss model for calculating impairments of financial assets, plus new general hedge accounting requirements. The stipulations of IAS 39 relating to including and dropping financial instruments have been taken on board in the new guideline. IFRS 9 is coming into effect for financial years starting on or after 1 January 2018, with the option of implementing the guideline earlier than that. The Group will analyse the potential impact on the consolidated financial statements as a result of the application of IFRS 9. It is expected that this guideline will be approved by the EU.

IFRS 15 — Revenue from contracts with clients

IFRS 15 defines an all-embracing framework for determining whether, to what extent and when revenues have to be included. It replaces the existing regulations relating to the recognition of revenue, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes.

IFRS 15 is coming into effect for financial years starting on or after 1 January 2018, with the option of implementing the guideline earlier than that. The Group is analysing the potential impact on the consolidated financial statements as a result of the application of IFRS 15. It is expected that the impact of this guideline will be limited.

IFRS 16 — Leases

A new guideline IFRS 16 (Leases) was published on 13 January 2016. Applying this guideline is mandatory as of 1 January 2019. The way lease contracts are dealt with in the accounts will change fundamentally. IFRS 16 eliminates the current recognition method, in which a distinction is made between financial leasing (on balance) and operational leasing (off balance). Instead of that, there will be a single model for recognition, comparable to the current financial lease accounting. The Group has started with the assessment of the impact of this guideline. It is expected that this guideline will have a major impact on the Group’s balance sheet. This guideline has not yet been approved by the EU.

Other

The following new or amended standards have no significant impact on the consolidated financial statements of the Group:

• Recognition of deferred tax assets for unrealized losses (Amendments to IAS 12)

• Disclosure Initiative (Amendments to IAS 7)

• Clarifications IFRS 15 Revenue from contracts with customers

• Classification and valuation of share-based payment transactions (Amendments to IFRS 2)

• The application of IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (Amendments to IFRS 4)

• Annual IFRS improvements cyclus2014-2016

• Foreign currency transactions and processing of payments (IFRIC 22)

• Transfer of Property (Amendment to IAS 40)

Estimates and assessments

The preparation of the financial statements requires the Executive Board to make judgements, estimates and assumptions that affect the application of accounting policies and the reported value of assets and liabilities, and income and expenses. The estimates and corresponding assumptions are based on experiences from the past and various other factors that could be considered reasonable under the circumstances. The actual outcomes may differ from these estimates.

The estimates and underlying assumptions are reviewed on a regular basis. Revisions of estimates are recognised in the period in which the estimate is revised or in future periods if the revision has consequences for these periods.

The key estimates and evaluations involve (largely) estimates of provisions/claims relating to irregularities (note 25 and note 29) and valuation of deferred tax receivables (note 16).

The accounting policies described below have been applied consistently to the periods presented in these consolidated financial statements.

Principles of consolidation

Subsidiaries

The Group has control over an entity if its involvement with that entity means that the Group is exposed to or is entitled to variable returns and that it has the power to influence those returns by virtue of its say in that entity. The financial statements of the subsidiaries are incorporated in the consolidated financial statements as from the date on which control commences until the date on which control ceases.

In the event of a loss of control over the subsidiary, the subsidiary's assets and liabilities, any minority interests and other equity components associated with the subsidiary are no longer recognised in the balance sheet. Any excess or shortfall is included in the income statement. If the Group maintains an interest in the former subsidiary, that interest is recognised at the fair value on the date on which the Group ceased to exercise control.

Interests in investments are recognised according to the equity method.

The Group’s interests in investments accounted for using the equity method consist of interests in associates and joint ventures.

Associates are entities in which the Group has significant influence on the financial and operational policy, but which it does not control. A joint venture is an agreement whereby the Group has a share of the control and in which the Group has rights with respect to the net assets of the venture rather than rights with respect to the (gross) assets and obligations with respect to the liabilities.

Associates and joint ventures over which control is exercised jointly are accounted for using the equity method and valued at cost price upon initial recognition. The cost price of the investment includes the transaction costs. Subsequent to initial recognition, the consolidated financial statements contain the Group’s share in the realised and unrealised results of the investments, accounted for according to the equity method, through to the date on which the significant influence ceases.

Acquisition of subsidiaries

Business combinations are recognised according to the acquisition method as at the date on which control is transferred to the Group. The remuneration for the acquisition is generally assessed at its fair value, as are the net identifiable assets that are acquired. Any goodwill deriving from this is assessed annually for impairments. Any recognised gain from a beneficial sale will be recognised directly in the income statement. Transaction costs are recognised at the time when they are incurred.

Elimination of transactions on consolidation

Intra-group balances and transactions plus any unrealised gains and losses on transactions within the Group or income and expenses from similar transactions are eliminated. Unrealised gains and losses arising from transactions with investments that are recognised according to the equity method are eliminated in proportion to the Group's interest in the investment. Unrealised losses are eliminated in the same way as unrealised profits, but only insofar as there are no indications that they should be treated as an impairment.

Currency translation

Foreign currency transactions

Transactions denominated in foreign currency are translated to the respective functional currency of the Group entities at the exchange rate applying on the transaction date. Foreign currency monetary assets and liabilities are translated into the functional currency at the exchange rate applying on the balance sheet date. Non-monetary assets denominated in foreign currencies and liabilities that are assessed at fair value are converted to the functional currency using the exchange rates that applied on the dates when the fair values were determined. Non-monetary assets denominated in foreign currencies and liabilities that are assessed using historical costs will not be recalculated.

The exchange rate differences on monetary items concern the difference between the amortised costs in the functional currency at the start of the period, adjusted for effective interest and payments during the period, and the amortised costs in foreign currency translated at the exchange rate at the end of the period. Exchange rate differences arising when the following items are converted are recognised in the unrealised results:

• financial liabilities that are designated as a hedge of the net investment in a foreign operation

• qualifying cash flow hedges, insofar as the hedging is effective

Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated into euros at the exchange rates applying at the reporting date. The revenues and costs of foreign operations are converted into euros at an average exchange rate that approximates to the exchange rate on the transaction date.

Currency conversion differences are included in the unrealised results and recognised in the reserve for foreign exchange differences. If the sale of a foreign activity means that the Group loses control, significant influence or joint control, then the cumulative amount from the foreign exchange differences reserve associated with that foreign activity will be transferred to the income statement when the profit or loss from the sale is recognised. If the Group only sells part of its interest in a subsidiary, while retaining control, then a proportionate share of the cumulative amount will be reassigned to the minority holding. If the Group only sells part of its interest in an associate or joint venture, while retaining significant influence or joint control, then a proportionate share of the cumulative amount will be transferred to the income statement.

Property, plant and equipment

Property, plant and equipment are measured at cost, less cumulative depreciation and cumulative impairment losses. The cost of self-produced assets includes the cost of materials, direct labour costs, a reasonable portion of the indirect production costs, and - if relevant - the estimated costs of dismantling and removing the asset and the costs of restoring the site where the asset was located.

Computer software that is an integral part of the computer equipment is capitalised as part of the equipment in question.

Assets of which the Group is merely the economic owner are accounted for in the balance sheet.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the book value of the asset and are recognised net within ‘Other revenue’ in the income statement.

Investment property

Investment property includes property held in order to earn rental income or an appreciation in value, or both. Investment property is measured at cost, less cumulative depreciation and cumulative impairment losses. The cost of self-produced assets includes the cost of materials, direct labour costs, a reasonable portion of the indirect production costs, and - if relevant - the estimated costs of dismantling and removing the asset and the costs of restoring the site where the asset was located.

The following policies apply equally to property, plant and equipment and to investment property.

Components

If property, plant and equipment or investment property consist of categories with differing economic lives, these categories are listed separately under property, plant and equipment or investment property.

The book value of property, plant and equipment or investment property is adjusted for the cost of replacing all or part of that asset when such costs are incurred and if it is likely that the replacement will deliver future economic benefits. All other costs of maintaining the asset are charged to the income statement as and when they are incurred.

Depreciation/amortisation/impairment

Depreciation of property, plant and equipment is linear, after deducting the residual value, based on the estimated operational lifespan of each individual item of property, plant and equipment. Depreciation is charged to the income statement.

Except where it is reasonably certain that the Group will be taking over the ownership of a leased asset at the end of the lease period, leased assets are depreciated over the period of the leasing agreement or the operational lifespan (whichever is the shorter). Land is not depreciated with the exception of paving. The estimated economic service life for property, plant and equipment is as follows:

The indicated service life is an average for the assets concerned and for the components of which the assets are made up.

The depreciation method, remaining useful life and residual value are assessed each year.

If a change in use causes an item of property, plant and equipment to be treated as investment property or if an investment property is intended for the company’s own use, it is transferred to investment property or property, plant and equipment respectively. Because the valuation of both categories of fixed assets is the same, they are transferred at the book value.

Intangible non-current assets

Goodwill

All business combinations are accounted for using the acquisition method. Goodwill is the sum deriving from the acquisition of subsidiaries, associates and joint ventures. Goodwill equals the difference between the cost of the acquisition and the fair value of the identifiable assets and liabilities on the date on which they are acquired. Goodwill is carried at cost less impairment.

Negative goodwill from an acquisition is taken directly to the statement of income.

Other intangible non-current assets.

Other intangible non-current assets with a limited lifespan acquired or produced by the Group are recognised in the balance sheet at cost less cumulative amortisation and cumulative impairment.

Subsequent to initial recognition, expenditure on capitalised intangible fixed assets is only capitalised when this causes an increase in the future economic rewards associated with the specific asset involved. All other expenditure, including internally generated goodwill and trademarks, is charged to the statement of income when it is incurred.

Amortisation is charged to the statement of income on a straight-line basis over the estimated useful lives of the intangible assets, with the exception of goodwill, from the date on which they become available for use. The estimated useful economic lives are as follows:

• Software 3 - 10 years

• Contracts 5 - 10 years

Inventories

Inventories are stated at the lower of cost and the net realisable value. The net realisable value is the estimated sales price in the normal conduct of business, less the estimated cost of completion and the cost of sales.

The cost of the inventories is based on the average purchase price or cost price and includes expenditure incurred in acquiring the inventories and the associated costs of purchase. The cost of inventories of finished goods and work in progress includes a reasonable portion of the indirect costs based on normal production capacity.

Projects in progress commissioned by third parties

Projects in progress commissioned by third parties (construction contracts) are carried at cost plus profit as at the balance sheet date, less a provision for anticipated losses and less invoiced instalments pro rata to the progress of the project. The cost encompasses all expenditure relating directly to specific projects and an attributable portion of the fixed and variable indirect costs incurred in connection with the contract activities, based on normal production capacity.

A receivable is created if the amount of the expenses incurred (including the recognised result) exceeds the amount of the invoiced instalments. If the amount of the costs incurred (including the result recognised) is less than the invoiced instalments, the item is classed as a liability.

Financial instruments

On initial recognition, loans, receivables and deposits included by the Group from the date on which they first arose. All other financial assets are first included on the transaction date. The Group ceases recognition of a financial asset in the balance sheet once the contractual rights to the cash flows from the asset expire, or if the Group transfers the contractual rights to the cash flows from the financial asset by means of a transaction in which virtually all risks and benefits associated with ownership of the asset are transferred.

The Group ceases recognition of a financial asset in the balance sheet once the contractual rights to the cash flows from the asset expire, or if the Group transfers the contractual rights to the cash flows from the financial asset by means of a transaction in which virtually all risks and benefits associated with ownership of the asset are transferred, or whereby virtually all risks and benefits associated with ownership of the asset are neither transferred nor retained and control of the asset transferred is not retained either. If the Group retains or creates an interests in the financial assets being transferred, then that interest is included as a separate asset or liability.

The Group ceases recognition of a financial liability in the balance sheet once the contractual obligations have been fulfilled or cancelled or have expired.

Financial assets and liabilities are included as net values, and the resulting net amount is presented on the balance sheet only if the Group has a legally enforceable entitlement to that net value and if it intends to show the balance as a net item or to realise the asset and the liability simultaneously.

The Group uses the following financial instruments:

Non-derivative financial instruments

Non-derivative financial instruments include investments in equity securities, deposits and bonds, trade and other receivables, cash and cash equivalents, loans and other financial liabilities, and trade and other payables.

Non-derivative financial instruments are initially recognised at fair value. Subsequent to initial recognition, non-derivative financial instruments are measured as described below.

Held-to-maturity financial assets

If the Group has the positive intent and ability to hold financial assets to maturity, they are measured at amortised cost plus any directly attributable transaction charges, using the effective interest method, less any impairment losses.

Available-for-sale financial assets

The Group's investments in certain bonds and deposits are classified as available-for-sale financial assets. Subsequent to initial recognition, these assets are measured at fair value, and any changes in the fair value, other than impairment losses and exchange rate gains and losses on available-for-sale monetary items, are recognised directly in equity via the comprehensive income. Attributable transaction costs are included in the income statement as a charge at the moment when they are incurred. When an investment is derecognised, the cumulative gain or loss in equity is transferred to the income statement.

If no information is available for determining the fair value, the assets will be valued at cost price.

Other non-derivative financial instruments

These instruments are valued at fair value (plus any directly attributable transaction costs) when first recognised. Subsequent to initial recognition, loans and receivables are valued at an amortised cost price using the effective interest method.

Derivative financial instruments

The Group holds derivative financial instruments to hedge its foreign currency and interest rate or commodity risks. Derivative financial instruments are valued on initial recognition at fair value, which is the same as the cost price applicable at the time. Attributable transaction costs are included in the income statement as a charge at the moment when they are incurred. Subsequent to initial recognition, derivatives are measured at fair value and any changes are accounted for as described below.

Hedge accounting

The accounting method in the result depends on the question of whether hedge accounting is used and if so, whether the hedging relationship is effective. If the hedging relationship is effective, then hedge accounting is used for these derivatives. When a hedging transaction is entered into, the hedging relationship is documented. Checks are made regularly to see if the hedging transaction has been effective over the period just completed and whether it is expected that the hedging transaction will be effective over the coming period. If the hedging instrument expires, is sold, terminated or exercised or no longer complies with the criteria that allow hedge accounting to be applied, then its application will be halted immediately.

Cash-flow hedges

If a derivative financial instrument is designated as a hedge for fluctuations in cash flows ensuing from a certain risk associated with a recognised asset or liability, or because an extremely likely expected transaction could affect the profit or loss, then the effective portion of the changes in the fair value of the derivative financial instrument is recognised in the unrealised results and presented in equity in the hedging reserve. Any ineffective portion of the changes in the fair value of the derivative financial instrument is recognised directly in the income statement. The accrued amount is transferred to the income statement in the same period in which the hedged position affects the income statement.

Fair value of hedges

Changes in the fair value of a derivative hedging instrument that is designated afair-value hedge are charged or credited to the income statement together with the changes in the fair value of the (group of) assets and liabilities insofar as they are attributable to the hedged risk.

If a hedge instrument no longer qualifies for hedge accounting, expires or is sold, then hedge accounting is discontinued prospectively. The cumulative profit or cumulative loss that was previously recognised in equity remains part of the equity until the expected transaction has taken place. The amount recognised in equity is transferred to the income statement (with the net change in the fair value of the cash-flow hedges transferred from equity) in the same period in which the hedging instrument affects the income statement.

Economic hedges

Hedge accounting is not applied to derivative instruments that are used as economic hedges of assets and liabilities denominated in foreign currencies. Changes in the fair value of such derivatives are recognised in the income statement as part of the exchange rate gains and losses.

Hedging energy costs

The Group uses ‘accrual accounting’ for commodity derivatives intended for its own use, claiming the exception allowed by IAS 39.5, insofar as the stipulations of IAS 39.5 are met. This is applicable to purchases of diesel and fuel oil and energy in the Netherlands and is explained in the risks section and in ‘Off balance sheet liabilities’. The other commodity derivatives that do not meet the criterion of being intended for the Group’s own use are valued at fair value and hedge accounting is used where possible.

Impairments

Financial assets

Financial assets are assessed at each reporting date to determine whether there is objective evidence of any impairment. A financial asset is considered to be impaired if there is objective evidence indicating that one or more events has had a negative effect on the projected future cash flows of that asset.

An impairment loss for a financial asset carried at amortised cost is calculated as the difference between the book value and the present value of the projected future cash flows, discounted at the original effective interest rate. Any impairment loss on an available-for-sale financial asset is calculated using the fair value.

Significant financial assets are individually tested for impairment. The remaining financial assets are grouped into comparable credit risk classes and assessed collectively.

All impairment losses are charged to the statement of income. Any cumulative loss on an available-for-sale financial asset that was recognised previously in equity is transferred to the income statement.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised as income in the income statement.

Non-financial assets

The book value of the Group’s non-financial assets, except for inventories and deferred tax receivables (where specific guidelines are applicable), are reviewed at each reporting date to determine whether there is any indication of impairment. If there are such indications, an estimate is made of the recoverable amount of the asset in question. For goodwill and intangible fixed assets that are not yet available for use, the recoverable amount is estimated at each reporting date.

The recoverable amount of an asset or a cash generating unit equals the higher of the value in use and the fair value net of selling costs. In assessing the value in use, the present value of the estimated future pre-tax cash flows is calculated using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the ‘cash-generating unit’). For the purpose of impairment assessments, the goodwill acquired in a business combination is allocated to the cash-generating units that are expected to benefit from the synergies of the combination.

An impairment loss is recognised if the book value of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in the statement of income. Impairment losses recognised in respect of cash-generating units are first deducted from the book value of any goodwill allocated to units, and then deducted from the book value of the other assets in the unit or group of units on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's book value does not exceed the book value that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Equity

Dividends are included in the period over which the appropriation of profits is decided upon and the dividends are declared.

Deferred credits

These credits relate to amounts received in one go under agreements with terms extending to future years. The proceeds are credited to the income statement over the term of the agreements to which they relate. The proceeds are measured at amortised cost.

Employee benefits

Employee benefits includes pension liabilities for pension plans and other obligations relating to employee benefits, consisting of long-service awards, early retirement payments and obligations due to employees’ occupational disability.

Defined contribution plans are plans under which the Group has no obligations other than to pay the contractual contributions. These contributions are included in the income statement in the period for which the contribution is payable.

Defined benefit plans are those in which the Group’s obligations extend beyond payment of the mandatory, contractually agreed contribution to pension funds or insurance companies. The Group's net liability is determined individually for each plan by estimating the pension benefits that employees have accrued in the reporting period and the preceding years. The net present value of these pension benefits is determined, netted off against the fair value of the pension assets. The discount rate is the interest rate as at the balance sheet date for high-value fixed income securities for which the maturity period is approximately the same as that of the pension liabilities. The calculation takes account of elements such as future wage increases resulting from general developments in wage levels and career opportunities, inflation, and current life expectancies. The calculation is performed annually by a qualified actuary using the projected unit credit method. If the calculation results in a benefit to the Group, the recognised asset cannot exceed the net value of any unrecognised past service pension costs and the present value of any future refunds from the plan or reductions in future contributions to the plan. The employee’s part is deducted from the liability.

The pension liabilities relating to parts of the group that are established in the UK have been included for the period during which the transport concessions operate.

The change in pension liabilities and investment returns anticipated at the start of the year, based on the actuarial calculations, is included as a change in the net liabilities and in the income statement. Contributions paid by employers and employees are deducted from the net liabilities. The actuarial gains and losses, which comprise the difference between the actual and anticipated changes in the pension liabilities and investment returns, are recognised in comprehensive income.

Obligations relating to long-service awards and early retirement are calculated actuarially and carried at net present value. This takes account of developments in wages and prices, recent mortality tables and estimates of the employment duration. Any actuarial gains or losses are recognised in the statement of income in the period in which they occur.

The obligations due to occupational disability are determined in a similar fashion.

Short-term employee benefits

Any entitlements to time off that have not been taken are turned into cash values, taking account of future salary increases.

Other short-term employee benefits are valued without being converted into the present values and recognised when the service associated with them is rendered.

Provisions

A provision is recognised in the balance sheet whenever the Group has a legally enforceable or de facto liability as a consequence of a past event and it is probable that the settlement of that liability will entail an outflow of funds.

Provisions are determined by calculating the net present value of expected future cash flows based on a pre-tax discount rate that reflects both the current market valuations of the time value of money and, where necessary, the specific risks relating to the commitment.

Reorganisation costs and non-activity arrangements

Provisions are made in connection with restructurings if a formal, detailed plan has been drawn up for the reorganisation, and the reorganisation is either under way or has been announced. No provision is made for future operating expenses. Provisions for reorganisations relate mainly to redundancy schemes, bridging payments and the redeployment of redundant staff.

Provision for soil remediation

The provision for soil remediation work is intended to cover the costs incurred for the upkeep or repair of operational resources. In line with the Group's published environmental policy and the applicable legal requirements, provisions for the control and remediation of environmental contamination are formed when the pollution occurs or when it is discovered to have occurred.

Onerous contracts

A provision for onerous contracts is included in the balance sheet if the financial benefits that the Group expects to derive from a contract are less than the unavoidable costs of satisfying the contractual commitments.

The provision is accounted for at the present value of the anticipated net costs for continuation of the contract or, where this is lower, the present value of the anticipated costs for termination, being any compensation or fine entailed by the breach of contract. Before the provision is formed, an impairment loss is applied to the assets to which the contract relates.

Other provisions

Provisions are formed for losses arising from fire, accidents, guarantees issued, claims and other risks.

Leases

Assets where the company or its subsidiaries have beneficial ownership by virtue of a lease agreement are classified as financial leases. The company or its subsidiaries have beneficial ownership if almost all the risks and benefits associated with ownership have been transferred to it. Contracts where the beneficial ownership is in the hands of third parties are classified as operating leases. The substance according to IFRS is the determining factor in the classification of lease agreements as operating or financial leases (rather than the legal form of the contract).

Revenues

Revenue covers revenue from passenger services and from other activities, less discounts and turnover tax.

Services rendered and goods sold

Revenue from services rendered is accounted for in the income statement in the period in which the services are rendered. For delivery contracts that extend beyond the balance sheet date, calculation of the revenue is attributed to the individual years in proportion to the stage of completion of the transaction on the balance sheet date. The stage of completion is assessed by reference to surveys of work performed.

Revenue from the sale of goods is processed in the statement of income when the significant risks and rewards of ownership have been transferred to the buyer, collection of the amount payable is likely, the associated costs or return of goods, where applicable, can be estimated reliably and when the management has no ongoing involvement in the goods and the scale of the revenues can be estimated reliably.

Payments from the government under passenger transport agreements or transport concessions are recognised in the income statement in the period to which the payment relates.

Work in progress commissioned by third parties

Contractual revenue and expenses arising from projects in progress commissioned by third parties are accounted for in the income statement in proportion to the stage of completion of the project. The stage of completion is determined by ascertaining the costs of the work done in relation to total expected cost. As soon as the result can be reliably estimated, a proportional part of the profit is credited to the income statement. Expected losses on projects are immediately accounted for, in full, in the income statement.

Rental income

Rental income from investment property is credited to the income statement on a straight-line basis over the duration of the rental agreement. The costs of undertakings given to encourage tenants to enter into leases are accounted for as an integral component of total rental income.

Other revenue

This item includes incidental revenue and coverage by third parties of the costs of sideline activities and other activities that are not part of the company's operating activities. The difference between the sales value and the book value of items of property, plant and equipment that have been sold is also recognised under ‘Other revenue’.

Operating expenses

Operating expenses are assigned to the year to which they relate or in which the goods and services are delivered to customers.

Adjustment mechanisms for the main rail network concession

The implementation agreement with the Ministry of Infrastructure and the Environment includes a number of adjustment mechanisms for determining the franchise price. The correction relating to the average return for the concession is recognized as a receivable at the time the right on the correction excist in accordance with the calculation method laid down in the implementation on-contract. As a consequence of further insights, the adjustment mechanism relating to the average profitability over the franchise period will be included linearly over the term of the franchise instead of being accounted for a the moment that it becomes applicable. This is consistent with other (one-off) payments relating to the agreements. This change has no effect on the comparative figures, as no adjustment was accounted for in 2015.

Other (non-recurring) payments under the contract will be included lineair basis over the concession period.

Capitalised production for own use

The capitalised production for own use comprises the directly attributable personnel expenses and costs of materials used in the construction of assets for own use. This is mainly for the overhaul of trains.

Finance income and finance expenses

Finance income includes the interest income from monies invested, including that for financial assets available for sale, leasing income, gains from the sale of financial assets available for sale, and gains from the hedging instruments that are recognised in the income statement. Interest income is recognised in the income statement as it accrues, using the effective interest rate method. Dividend income is recognised in the income statement when the right to the dividend payment occurs.

Finance expenses include the interest expenses on borrowed monies, lease contracts, accrued interest on provisions and losses on hedging instruments that are recognised in the income statement. All finance costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are included in the income statement using the effective interest method. No financing costs were capitalised in 2015 or 2016.

Financial benefits released from cross-border leasing agreements are deducted from the interest charges. Exchange rate gains or losses are included in the finance income or expenses.

Government grants

Government grants are recognised if there is reasonable assurance that the entity will comply with the conditions attached to them and that the grants will be received. The government grants are deducted from the costs and assets to which they relate.

Lease payments

Payments made under operating leases are recognised as operating expenses in the statement of income on a straight-line basis over the term of the lease.

Corporate income tax

Tax on the profit or loss for the financial year comprises the income tax that is payable or can be offset in the reporting period and deferred income taxes. The income tax is recognised in the income statement, except if it relates to items recognised directly in equity via the comprehensive income, in which case the tax is recognised in equity via the comprehensive income.

All taxes are stated at nominal value.

The tax to be paid or offset for the financial year is the expected tax charge on taxable profit for the financial year, calculated using the tax rates in force on the balance sheet date, and includes adjustments to tax payable for prior years.

For the purpose of income tax, nearly all the subsidiaries belonging to the Group are part of the NS tax group, with the exception of the foreign corporate units.

Deferred tax assets and deferred tax liabilities arise from temporary differences between the book value of assets and liabilities in the financial reporting and the book value for tax purposes. These are calculated on the basis of the tax rates that are expected to apply at the reversal of the temporary differences, using tax rates enacted or substantively enacted as at the balance sheet date.

Deferred tax assets, including those deriving from tax loss carry-forwards, are valued if it is probably that sufficient tax profits will be available for compensating for the losses and if possibilities for offsetting losses can be utilised.
Deferred tax assets and deferred tax liabilities are only netted if there is a formal netting right and the company intends to settle deferred tax positions simultaneously. Deferred tax positions are stated at nominal value.

Determination of fair value

A number of the Group's accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods.

Property, plant and equipment

The fair value of property, plant and equipment recognised as a result of a business combination is based on market values. The fair value is calculated on the basis of an up-to-date purchase price, or is determined by the historic cost with the aid of index figures to bring it up to the current price level.

Investment property

Given the nature, diversity and locations (station environments) the fair value of the property portfolio can not be determined reliably. Is expected to be the fair value substantially higher than the book value of the properties. The fair value of investment property is only determined for the purpose of the disclosures.

Investments in bonds and deposits

The fair value of held-to-maturity financial assets and available-for-sale financial assets is determined by reference to their price as at the reporting date. The fair value of held-to-maturity investments is determined for disclosure purposes only.

Derivatives

The fair value of derivatives is based on derived market prices, taking account of the current interest rate and current creditworthiness of the counterparties to the contract.

Non-derivative financial liabilities

The fair value of non-derivative financial liabilities is determined for disclosure purposes and is calculated based on the present value of future repayments and interest payments, discounted at the market interest rate as at the reporting date. For financial leases, the market interest rate is determined by reference to similar lease agreements.

Segmented information

The Group is not obliged to comply with the requirements of IFRS 8 on the grounds that the absence of a stock exchange listing. To meet the requirements of the Dutch legislation segment information by geographical area regarding sales and FTEs is included.

Accounting policies for the consolidated statement of cash flows

The statement of cash flows is drawn up using the indirect method, using a comparison between the initial and final balances for the period in question. The result is then adjusted for changes that did not generate income or expenses during the financial year.