Volvo 2006 Annual Report Download - page 117

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Financial information 2006 113
Goodwill
AB Volvo decided during the third quarter 2006 to reverse a valua-
tion allowance for deferred tax receivables in the Mack Trucks
subsidiary. The decision is based on the fact that Volvo assesses
that the company has a long-term higher profi tability. Reporting of
the deferred tax receivables reduced tax expenses in the income
statement in the third quarter by 2,048. In accordance with prevail-
ing accounting rules, Volvo adjusted goodwill by 1,712. The adjust-
ment decreases book value of goodwill for the three truck brands
with the same share that was used in the original allotment. The
remaining deviation in book value compared to the previous year
mainly consists of revaluation effects caused by differences in cur-
rency rates.
Annually, in connection with the annual closing, or more frequently
if required, Volvo’s operations are evaluated and compared with its
carrying value in order to identify any impairment of goodwill assets.
Volvo’s evaluation model is based on a discounted cash-fl ow model,
with a forecast period of four years. Evaluation is made on cash-gen-
erating units, identifi ed as Volvo’s operational areas or business
areas. Goodwill assets are allocated to these cash generating units
on the basis of anticipated future utility. The evaluation is based on
management’s best judgment of the operations’ development. The
basis for this judgment is long-term forecasts of the market’s
growth, two to four percent, in relation to the development of Volvo’s
operations. In the model, Volvo is expected to maintain stable capital
effi ciency over time. The evaluation is made on nominal value and
the general rate of infl ation, in line with the European target, is used.
Volvo uses a discounting factor calculated to 12% before tax for
2006.
During 2006, the value of Volvo’s operations has exceeded the
carrying value of goodwill for all operational areas, and accordingly,
no impairment was recognized. For the specifi ed cash generating
units Volvo has evaluated the value of goodwill with reasonable
changed assumptions, negatively adjusted with one percentage
point, where of no adjustment, individually, would have such a big
effect that there would be an impairment.
Goodwill per Business Area 2005 2006
Volvo Trucks 4,096 3,129
Renault Trucks 2,007 1,391
Mack Trucks 982 592
Buses 1,134 1,055
Construction Equipment 2,480 2,329
Other 373 353
Total goodwill value 11,072 8,849
Investment property
Investment property is property owned for the purpose of obtaining
rental income and/or appreciation in value. The acquisition cost of
investment property was 1,633 (1,534; 1,859) at year-end. Capital
expenditures during 2006 amounted to 81 (15; 20). Accumulated
depreciation was 523 (463; 472) at year-end, whereof 55 (53; 68)
during 2005. The estimated fair value of investment property was
SEK 1,9 billion (1,9; 2,2) at year-end, based on the yield. The
required return is based on current property market conditions for
comparable properties in comparable locations. All investment prop-
erties were leased out during the year. Net income for the year was
affected by 281 (272; 332) in rental income from investment prop-
erties and 50 (45; 66) in direct costs.