Volvo 2006 Annual Report Download - page 96

92 Financial information 2006
The Volvo Group
Notes to consolidated financial statements
Exchange rates Average rate Year-end rate
Country Currency 2004 2005 2006 2004 2005 2006
Brasil BRL 2.5388 3.0947 3.3927 2.5125 3.4215 3.2190
Canada CAD 5.6495 6.1864 6.5096 5.4635 6.8435 5.9235
Denmark DKK 1.2285 1.2471 1.2420 1.2126 1.2651 1.2146
Euro EUR 9.1408 9.2943 9.2649 9.0163 9.4393 9.0593
Great Britain GBP 13.4515 13.5849 13.5822 12.7163 13.7388 13.4938
Japan JPY 0.0680 0.0679 0.0635 0.0638 0.0679 0.0579
Norway NOK 1.0926 1.1611 1.1516 1.0890 1.1770 1.0955
South Korea KRW 0.0065 0.0073 0.0077 0.0064 0.0079 0.0074
United States USD 7.3655 7.4791 7.3791 6.6138 7.9538 6.8738
fi s c al years beginning after June 1, 2006. The statement is a clarifi -
cation of IAS 39 regarding embedded derivatives, mainly with regard
to assessment of embedded derivatives as a result of market condi-
tions changing.
IFRIC 10 Interim Financial Reporting and Impairment
The interpretation became effective on November 1, 2006 and
applies to fi scal years beginning after that date. The interpretation
concludes that where an entity has recognized an impairment loss in
an interim period, that impairment may not be reversed in subse-
quent interim fi n ancial statements or in annual fi n ancial statements.
The Group will apply IFRIC 10 as of January 1, 2007, but this is not
expected to have any impact on the Group’s fi n ancial statements.
IFRIC 11 IFRS 2 Group and Treasury Share Transactions
The interpretation becomes effective on March 1, 2007 and applies
to fi scal years beginning after that date. The interpretation clarifi es
treatment regarding classifi cation of share-based payments in which
the company repurchases shares to settle its undertaking and
reporting of options programs in subsidiaries that apply IFRS. The
Group will apply IFRIC 11 as of January 1, 2008, but this is not
expected to have any impact on the Group’s fi n ancial statements.
IFRIC 12 Service Concession Arrangements
The interpretation becomes effective on January 1, 2008 and
applies to fi scal years beginning after that date. IFRIC 12 addresses
arrangements in which a private company shall establish an infra-
structure to provide public service for a specifi ed period. The com-
pany is paid for this service during the term of the contract. The
Group will apply IFRIC 12 as of January 1, 2008, but this is not
expected to have any impact on the Group’s fi n ancial statements.
Consolidated fi nancial statements
The consolidated fi n ancial statements comprise the Parent Com-
pany, subsidiaries, joint ventures and associated companies. Subsid-
iaries are defi ned as companies in which Volvo holds more than 50%
of the voting rights or in which Volvo otherwise has a controlling
interest. Joint ventures are companies over which Volvo has joint
control together with one or more external parties. Associated com-
panies are companies in which Volvo has a signifi cant infl uence,
which is normally when Volvo’s holding equals to at least 20% but
less than 50% of the voting rights.
The consolidated fi n ancial statement have been prepared in
accordance with the principles set forth in IAS 27, Consolidated and
Separate Financial Statements. Accordingly, intra-Group transactions
and gains on transactions with associated companies are eliminated.
All business combinations are accounted for in accordance with
the purchase method. Volvo applies IFRS 3, Business Combinations
for acquisitions after January 1, 2004, in accordance with the IFRS 1
transition rules. Volvo decided not to restate prior acquisitions. Volvo
values acquired identifi able assets, tangible and intangible, and
l iab ilities at fair value. Surplus amounts compared with the purchase
consideration are reported as goodwill. Any lesser amount, so-called
negative goodwill, is reported in the income statement.
Companies that have been divested are included in the consoli-
dated fi nancial statements up to and including the date of divest-
ment. Companies acquired during the year are consolidated as of
the date of acquisition.
Joint ventures are reported by use of the proportionate method of
consolidation.
Holdings in associated companies are reported in accordance
with the equity method. The Group’s share of reported income in
such companies is included in the consolidated income statement in
Income from investments in associated com panies, reduced in appro-
priate cases by depreciation of surplus values and the effect of apply-
ing different accounting principles. Income from associated com-
panies are included in operating income due to that the investments
are of operating nature.
For practical reasons, most of the associated companies are
included in the consolidated accounts with a certain time lag, nor-
mally 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 net income, reduced by depreci-
ation of surplus values and by the amount of dividends received.
Translation to Swedish kronor when
consolidating companies using foreign currencies
AB Volvo’s functional currency is the Swedish krona. All reporting in
group companies for group purposes is made in the currency where
the company has the majority of their revenues and expenses; nor-
mally the currency of the country where the company is located. AB
Volvo’s and The Volvo Group’s reporting currency is Swedish kronor.
In preparing the consolidated fi n ancial statements, all items in the
income statements of foreign subsidiaries and joint ventures (except
subsidiaries in highly infl ationary economies) are translated to Swed-
ish kronor at the average exchange rates during the year (average
rate). All balance sheet items are translated at exchange rates at the
respective year-ends (year-end rate). The differences in consolidated
shareholders’ equity arising as a result of variations between year-
end exchange rates are charged or credited directly to shareholders’
equity as a separate component.
The accumulated translation difference related to a certain sub-
sidiary, joint venture or associated company is reversed to income as
a part of the gain/loss arising from the divestment or liquidation of
such a company.
IAS 29, Financial Reporting in Hyperinfl ationary Economies, is
applied to fi nancial statements of subsidiaries operating in highly
infl ationary economies. Volvo applies reporting based on historical