Volvo 2007 Annual Report Download - page 95
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Please find page 95 of the 2007 Volvo annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report. Financial information 2007 91
for at fair value at each reporting date and provided for as an accrued
expense over the vesting period, which is applied for the employee
stock option program. See Note 34.
Pensions and similar obligations (Postemployment benefi ts)
Volvo applies IAS 19, Employee Benefi ts, for pensions and similar
obligations. In accordance with IAS 19, actuarial calculations should
be made for all defi ned-benefi t plans in order to determine the present
value of obligations for benefi ts vested by its current and former
employees. The actuarial calculations are prepared annually and are
based upon actuarial assumptions that are determined close to the
balance sheet date each year. Changes in the present value of obliga-
tions due to revised actuarial assumptions are treated as actuarial
gains or losses which are amortized over the employees’ average
remaining service period to the extent these exceed the corridor value
for each plan. Deviations between expected return on plan assets and
actual return are treated as actuarial gains or losses. Provisions for
post-employment benefi ts in Volvo’s balance sheet correspond to the
present value of obligations at year-end, less fair value of plan assets,
unrecognized actuarial gains or losses and unrecognized unvested
past service costs. See Note 24.
As a supplement to IAS 19, Volvo applies URA 43 in accordance
with the recommendation from the Swedish Financial Accounting
Standards Council in calculating the Swedish pension liabilities.
For defi ned contribution plans premiums are expensed as incurred.
Provisions for residual value risks
Residual value risks are attributable to operational leasing contracts
and sales transactions combined with buy-back agreements or resid-
ual value guarantees. Residual value risks are the risks that Volvo in
the future would have to dispose used products at a loss if the price
development of these products is worse than what was expected
when the contracts were entered. Provisions for residual value risks
are made on a continuing basis based upon estimations of the used
products’ future net realizable values. The estimations of future net
realizable values are made with consideration of current prices,
expected future price development, expected inventory turnover
period and expected variable and fi xed selling expenses. If the resid-
ual value risks are pertaining to products that are reported as tangible
assets in Volvo’s balance sheet, these risks are refl ected by deprecia-
tion or write-down of the carrying value of these assets. If the residual
value risks are pertaining to products, which are not reported as
assets in Volvo’s balance sheet, these risks are refl ected under the
line item short-term provisions.
Warranty expenses
Estimated costs for product warranties are charged to operating
expenses when the products are sold. Estimated costs include both
expected contractual warranty obligations as well as expected good-
will warranty obligations. Estimated costs are determined based upon
historical statistics with consideration of known changes in product
quality, repair costs or similar. Costs for campaigns in connection with
specifi c quality problems are charged to operating expenses when the
campaign is decided and announced.
Restructuring costs
Restructuring costs are reported as a separate line item in the income
statement if they relate to a considerable change of the Group struc-
ture. Other restructuring costs are included in Other operating income
and expenses. A provision for decided restructuring measures is
reported when a detailed plan for the implementation of the measures
is complete and when this plan is communicated to those who are
affected.
Deferred taxes, allocations and untaxed reserves
Tax legislation in Sweden and other countries sometimes contains
rules other than those identifi ed with generally accepted accounting
principles, and which pertain to the timing of taxation and measure-
ment of certain commercial transactions. Deferred taxes are provided
for on differences that arise between the taxable value and reported
value of assets and liabilities (temporary differences) as well as on
tax-loss carryforwards. However, with regard to the valuation of
deferred tax assets, that is, the value of future tax reductions, these
items are recognized provided that it is probable that the amounts can
be utilized against future taxable income.
Deferred taxes on temporary differences on participations in sub-
sidiaries and associated companies are only reported when it is prob-
able that the difference will be recovered in the near future.
Tax laws in Sweden and certain other countries allow companies to
defer payment of taxes through allocations to untaxed reserves.
These items are treated as temporary differences in the consolidated
balance sheet, that is, a split is made between deferred tax liability
and equity capital. In the consolidated income statement an allocation
to, or withdrawal from, untaxed reserves is divided between deferred
taxes and net income for the year.
Cash-fl ow statement
The cash-fl ow statement is prepared in accordance with IAS 7, Cash
Flow Statement, indirect method. The cash-fl ow statements of foreign
Group companies are translated at the average rate. Changes in
Group structure, acquisitions and divestments, are reported net,
excluding cash and cash equivalents, in the item Acquisition and
divestment of subsidiaries and other business units and are included
in Cash Flow from Investing Activities.
Cash and cash equivalents include cash, bank balances and parts
of Marketable Securities, with date of maturity within three months at the
time for investment. Marketable Securities comprise interest-bearing
securities, the majority of which with terms exceeding three years.
However, these securities have high liquidity and can easily be con-
verted to cash. In accordance with IAS 7, certain investment in mar-
ketable securities are excluded from the defi nition of cash and cash
equivalents in the cash-fl ow statement if the date of maturity of such
instruments is later than three months after the investment was
made.
Earnings per share
Earnings per share is calculated as the income for the period attrib-
uted to the shareholders of the parent company, divided with the aver-
age number of outstanding shares per reporting period. On April 26
2007, Volvo’s share split 6:1 with automatic redemption in which the
sixth share was redeemed by AB Volvo for SEK 25 per share took
effect, with the effect that the number of shares were fi vefold. To cal-
culate the diluted earnings per share, the average number of shares is
adjusted with the value of the share based incentive program and
employee stock option program recalculated to number of shares.
See Note 23 Shareholders’ equity.