SECTION 1.3  Operating expenses,  inventory and deposit liability 1.3.1  ACCOUNTING POLICIES 1.3.2  Deposit liabilities on returnable  packaging 1.3.2  SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS 1.3.2  ACCOUNTING POLICIES 65 Consolidated financial statements SECTION 1: OPERATING ACTIVITIES Carlsberg Group Annual Report 2013 It is Group policy to secure delivery of malt  and hops for the coming budget year, and the main part of the exposure for 2013 was  thus hedged through fixed-price purchase  agreements for the majority of the Group  in 2012. The percentage which is hedged or  price-fixed is higher for Western Europe than for Eastern Europe. Cost of sales comprises costs of products sold  during the year, indirect production overheads not allocated to specific products (IPO) and development costs.  Own-produced finished goods and work in pro- gress are measured at standard cost comprising  the cost of raw materials, consumables, direct  labour and indirect production overheads. Indirect  production overheads comprise indirect supplies,  wages and salaries, amortisation of trademarks  and software as well as maintenance and depre- ciation of machinery, plant and equipment used  for production and costs of production, adminis- tration and management. The cost of purchased finished goods, raw and  packaging materials and point-of-sale materials includes any costs that are related directly to  bringing inventories to the relevant place of sale  and getting them ready for sale, e.g. purchase  cost, insurance, freight, duties and similar costs.  Inventories are measured at the lower of standard  cost (own-produced finished goods) and weighted  average cost (other inventories) and net realis- able value. The net realisable value of inventories  is calculated as the selling price less costs of  completion and costs necessary to make the sale  and is determined taking into account marketabil- ity, obsolescence and developments in expected  selling price.  The cost of scrapped/impaired goods is expensed  within the function (line item) responsible for the  loss, i.e. losses during distribution are included  in the cost of distribution while the scrapping of  products due to sales not meeting forecasts is  included in sales expenses.  In a number of countries, the local entities  have a legal or constructive obligation to  take back returnable packaging from the  market. When invoicing customers, the entity  adds a deposit to the sales price and recog- nises a deposit liability. The deposit is paid  out on return of bottles, cans etc.  The deposit liability amounted to DKK  1,630m (2012: DKK 1,381m) at 31 December  2013, while the value of returnable packag- ing materials amounted to DKK 2,001m  (2012: DKK 1,727m). The capitalised value  of returnable packaging materials exceeds  the deposit liability as each of the return- able packaging items circulates a number  of times in the market. The deposit liability  was almost unchanged compared to the  liability at the end of 2012 except for the  effect of the Chongqing acquisition, which  increased the deposit liability. Management assesses the local busi- ness model, contracts and agreements,  the level of control over the returnable  packaging material and the return rate  to determine the accounting treatment  of the packaging material as either prop- erty, plant and equipment or inventory. The deposit liability provided for is esti- mated based on movements during the  year in recognised deposit liabilities and  on historical information about return rates  and loss of bottles in the market as well as  planned changes in packaging types. The obligation to refund deposits on returnable  packaging is stated on the basis of deposit price  as well as an estimate of the number of bottles,  kegs, cans and crates in circulation and expected  return rates. The accounting policy for returnable packaging  capitalised as property, plant and equipment is  described in section 2.4. 