201/264 Notes to the 2017 consolidated financial statements 1. Corporate information Spotify Technology S.A. (the “Company”) is a private limited company incorporated and domiciled in Luxembourg. The Company’s registered office is 42­44 avenue de la Gare, L1610, Luxembourg. The principal activity of the Company and its subsidiaries (the “Group”) is music streaming. The Group’s premium service (“Premium Service”) provides users with unlimited online and offline high­quality streaming access to its catalog. The Premium Service offers a commercial­free music experience. The Group’s ad­supported service (“Ad­Supported Service,” and together with its Premium Service, its “Service”) has no subscription fees and provides users with limited on­demand online access to the catalog. The Group depends on securing content licenses from a number of major and minor content owners and other rights holders in order to provide its service. 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Basis of preparation The consolidated financial statements of Spotify Technology S.A. comply with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and have been prepared on a historical cost basis, except for securities, long term investment, convertible senior notes (“Convertible Notes”), and derivative financial instruments, which have been measured at fair value. The consolidated financial statements have been prepared on the basis of a full retrospective application of IFRS 15, Revenue from Contracts with Customers , with an adoption date as of January 1, 2017. The preparation of the consolidated financial statements in conformity with IFRS requires the application of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the accounting policies. The areas involving a greater degree of judgment or complexity, or areas in which assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 3. The consolidated financial statements provide comparative information in respect of the previous periods. (b) Unaudited pro forma equity and net loss per share In January 2018, the Group entered into an exchange agreement with holders of outstanding Convertible Notes, pursuant to which the Group exchanged the Convertible Notes, plus accrued interest, for ordinary shares. Due to the terms and conditions of the exchange agreement the ordinary shares are recorded as a liability until a direct listing is completed. Upon a direct listing the fair value of the shares will be reclassified to equity. The unaudited pro forma consolidated statement of financial position as of December 31, 2017 has been prepared assuming the exchange agreement and a direct listing were consummated as of December 31, 2017. The unaudited pro forma basic and diluted net loss per share assumes the exchange agreement and direct listing were consummated as of the beginning of the period and therefore assumes the shares issued upon conversion of the Convertible Notes were outstanding from January 1, 2017. The unaudited pro forma basic and diluted net loss per share also has been computed to give effect to the shares issued upon conversion of the Convertible Notes on December 15, 2017 and December 27, 2017 disclosed in Note 18 as if they were outstanding from January 1, 2017. The numerator in the pro forma basic and diluted net loss per share calculation has been adjusted to eliminate the losses resulting from the fair value movements on Convertible Notes (see Note 9) as they were assumed to have converted upon a direct listing at the beginning of the period. See Note 11. F­8