7.2 Expenses by kind and function

Cost of goods sold includes the following:

• the costs of manufacturing products incurred in a given reporting period, adjusted by a change in the inventories (finished goods, semi-finished products and work in progress) and adjusted by the cost of manufacturing products for the Company’s own purposes,
• the value of electricity, goods and materials sold at cost, changes in the fair value measurements of financial instruments related to lignite measured at fair value, and changes in the measurement of lignite inventories measured at fair value.

The costs of manufacturing that can be allocated directly to revenue achieved by entities influence their financial result for the reporting period in which such revenue occurs.

The costs of manufacture which can be allocated only indirectly to revenue or other benefits achieved by entities influence their financial result in the part in which they relate to a given reporting period, ensuring that they are commensurate with revenue or other economic benefits

As presented in note 3.1 to these financial statements, in 2020, as a result of the impairment tests carried out for the item Depreciation and write-downs, the Group recognised impairment write-downs on property, plant and equipment in the amount of PLN 530 million.

The increase in the value of goods and materials sold is due to the increase in the purchase of electricity from the exchange for the purpose of securing sales to end users, which is caused by the introduction of the 100% exchange obligation and the increase in average electricity prices on the market.