Volvo 2001 Annual Report Download - page 62

THE VOLVO GROUP · NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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RR16 Provisions, Contingent Liabilities
and Contingent Assets
In accordance with RR16 Provisions, Contingent
Liabilities and Contingent Assets, a provision for decided
restructuring measures is reported first when a detailed
plan for the implementation of the measures is complete
and when this plan is communicated to those who are
affected. In accordance with Volvo’s previous accounting
principles, a provision for restructuring measures was
reported in connection with the measures being decided
by the company’s management.
Income from investments in shares
Effective in 2001, Income from investments in associat-
ed companies and Income from other investments are
included as a part of the operating income rather than as
earlier as a part of the financial net. The change has
been made as an adaption to Volvo’s internal business
control model in connection with the new organization.
Comparable figures for previous years have been re-
stated to conform to the changed classification.
Financial income and expenses in the Financial Services
business area
In connection with the formation of the Financial
Services business area January 1, 2000, there has been
a modification of the principles used to classify financial
income and expense in Volvo’s insurance and real estate
businesses. Effective in 2000, financial income and
expense in these operations are reported in the Volvo
Group’s operating income. Earlier, these items were
included in the Volvo Group’s net interest
income/expense. Comparable figures for 1999 have
been adjusted to conform to the revised classification
principle. As a result of the above, the definition of the
Volvo Group’s net financial assets has also been modi-
fied. Effective in 2000, the Volvo Group’s net financial
assets have been calculated excluding the Financial
Services business area since financial income and
expense in Financial Services is reported in consolidated
operating income. As of January 1, 2000, as a result of
the new definition, Volvo’s net financial assets were
reduced by SEK 2.2 billion.
Effective in 2000, Volvo Treasury’s income is reported
as part of the operating income in the Financial Services
business area. Volvo Treasury’s income includes interest
income and similar income, interest expense and similar
expenses, as well as overhead costs of Volvo Treasury’s
operations. However, income excludes the effects of the
equity-capital base in Volvo Treasury. Based on the
above definition, Volvo Treasury’s income for 2000
amounted to SEK 151 M. Of this amount, SEK 183 M
was formerly included in interest income in accordance
with the earlier principle, and a deficit of SEK 32 M was
included in Other financial expenses.
Change in identification of overhead costs
in Volvo’s spare-parts operations
Effective in 2000, the method of calculating Volvo’s
product costs related to spare parts has been revised.
Beginning in 2000, overhead costs of the Volvo Group’s
spare-parts business, which earlier were included among
administrative costs, are being included among cost of
sales. Comparable figures for 1999 have been adjusted
to conform to the changed classification.
Consolidated accounts
The consolidated accounts comprise the Parent
Company, all subsidiaries and associated companies.
Subsidiaries are defined as companies in which Volvo
holds more than 50% of the voting rights or in which
Volvo otherwise has a controlling influence. However,
subsidiaries in which Volvo’s holding is temporary are not
consolidated. Associated companies are companies in
which Volvo has long-term holdings equal to at least
20% but not more than 50% of the voting rights.
The consolidated accounts are prepared in accord-
ance with the principles set forth in the Recommen-
dation of the Swedish Financial Accounting Standards
Council, RR1:00, Consolidated Financial Statements and
Business Combinations.
All business combinations are accounted for in accord-
ance with the purchase method.
Companies that have been divested are normally
included in the consolidated accounts up to and includ-
ing the date of divestment. However the measurement
date for divestment of Volvo Cars was January 1, 1999.
Companies acquired during the year are consolidated as
of the date of acquisition.
Holdings in associated companies are reported in
accordance with the equity method. The Group’s share
of reported income before taxes in such companies,
adjusted for minority interests, is included in the consoli-
dated income statement in Income from investments in
associated companies, reduced in appropriate cases by
amortization of goodwill. The Group’s share of reported
taxes in associated companies, is included in Group tax
expense.
For practical reasons, most of the associated compa-
nies are included in the consolidated accounts with a
certain time lag, normally one quarter. Dividends from
associated companies are not included in consolidated
income. In the consolidated balance sheet, the book value
of shareholdings in associated companies is affected by
Volvo’s share of the company’s income after tax, reduced
by the amortization of goodwill and by the amount of
dividends received.
Accounting for hedges
Loans and other financial instruments used to hedge an
underlying position are reported as a hedge. In order to
apply hedge accounting, the following criteria must be
met: the position being hedged is identified and exposed
Exchange rates Average rate Jan–Dec Year-end rate
Country Currency 1999 2000 2001 1999 2000 2001
Denmark DKK 1.1864 1.1334 1.2403 1.1505 1.1870 1.2670
Japan JPY 0.0731 0.0850 0.0850 0.0835 0.0832 0.0813
Norway NOK 1.0604 1.0414 1.1485 1.0605 1.0715 1.1840
Great Britain GBP 13.3834 13.8620 14.8763 13.7950 14.2200 15.4800
United States USD 8.2742 9.1581 10.3272 8.5250 9.5350 10.6700
Euro EUR 8.8245 8.4494 9.2434 8.5635 8.8570 9.4240