Volvo 2009 Annual Report Download - page 76

Notes to consolidated financial statements
on payments during the year and on the valuation of assets and liabil-
ities in foreign currencies at year-end are credited to, or charged
against, income in the year they arise. The more important exchange
rates applied are shown in the table.
Net sales and revenue recognition
The Group’s reported net sales pertain mainly to revenues from sales
of goods and services. Net sales are reduced by the value of dis-
counts granted and by returns.
Income from the sale of goods is recognized when significant risks
and rewards of ownership have been transferred to external parties,
normally when the goods are delivered to the customers. If, however,
the sale of goods is combined with a buy-back agreement or a residual
value guarantee, the sale is accounted for as an operating lease
transaction if significant risks of the goods are retained in Volvo. Rev-
enues are then recognized over the period of the residual value com-
mitment. If the residual value risk commitment is not significant, inde-
pendent from the sale transaction or in combination with a commitment
from the customer to buy a new Volvo product in connection to a buy-
back option, the revenue is recognized at the time of sale and a provi-
sion is reported to reflect the estimated residual value risk (see Provi-
sions below).
Revenue from the sale of workshop services is recognized when
the service is provided. Interest income in conjunction with finance
leasing or installment contracts are recognized during the underlying
contract period. Revenue for maintenance contracts are recognized
according to how costs associated with the contracts are distributed
during the contract period.
Interest income is recognized on a continuous basis and dividend
income when the right to receive dividend is obtained.
Leasing
Volvo as the lessor
Leasing contracts are defined in two categories, operating and
finance leases, depending on the contract’s financial implications.
Operating leasing contracts are reported as non-current assets in
Assets under operating leases. Income from operating leasing is
reported equally distributed over the leasing period. Straight-line
depreciation is applied to these assets in accordance with the terms
of the undertaking and the deprecation amount is adjusted to corre-
spond to the estimated realizable value when the undertaking expires.
Assessed impairments are charged to the income statement. The
product’s assessed realizable value at expiration of the undertaking is
reviewed continuously on an individual basis.
Finance leasing agreements are reported as either Non-current or
current receivables in the customer finance operations. Payments
from finance leasing contracts are distributed between interest
income and amortization of the receivable in the customer finance
operations.
Volvo as the lessee
Volvo evaluates leasing contracts in accordance with IAS 17, Leases.
In those cases in which risks and rewards that are related to owner-
ship are substantially held by Volvo, so called finance leases, Volvo
reports the asset and related obligation in the balance sheet at the
lower of the leased asset’s fair value or the present value of minimum
lease payments. Future leasing fee commitments are reported as
loans. The lease asset is depreciated in accordance with Volvo’s policy
for the respective non-current asset. The lease payments when made
are allocated between amortization and interest expenses. If the leas-
ing contract is considered to be a so called operating lease, lease
payments are charged to the income statement over the lease con-
tract period.
Reporting of financial assets and liabilities
Financial assets treated within the framework of IAS 39 are classified
either as
– Financial assets at fair value through profit and loss,
– Investments held to maturity,
– Loans and receivables, or as
– Available-for-sale financial assets
Financial liabilities are reported at amortized cost.
Purchases and sales of financial assets and liabilities are recog-
nized on the transaction date. A financial asset is derecognized (extin-
guished) in the balance sheet when all significant risks and benefits
linked to the asset have been transferred to a third party. The same
principles are applied for financial assets in the segment reporting of
Volvo Group.
The fair value of assets is determined based on the market prices in
such cases they exist. If market prices are unavailable, the fair value is
determined for each asset using various valuation techniques. Trans-
action expenses are included in the asset’s fair value except in cases
in which the change in value is recognized in the income statement.
The transaction costs arising in conjunction with assuming financial
liabilities are amortized over the term of the loan as a financial cost.
Embedded derivatives are detached from the related main contract, if
applicable. Contracts containing embedded derivatives are valued at fair
value in the income statement if the contracts’ inherent risk and other
characteristics indicate a close relation to the embedded derivative.
Financial assets at fair value through profit and loss
All of Volvo’s financial assets that are recognized at fair value in the
income statement are classified as held for trading. Included are
Exchange rates Average rate Closing rate
Country Currency 2008 2009 2008 2009
Brazil BRL 3.6152 3.8444 3.2490 4.1375
Canada CAD 6.1723 6.7006 6.3060 6.8885
China CNY 0.9464 1.119 2 1.1300 1.0600
Denmark DKK 1.2895 1.4275 1.4691 1.3926
Euro EUR 9.6142 10.6305 10.9448 10.3623
Great Britain GBP 12.0975 11. 9 32 2 11.2538 11. 4 913
Japan JPY 0.0641 0.0819 0.0861 0.0785
Norway NOK 1.1716 1.2172 1.1045 1.2440
South Korea KRW 0.0060 0.0060 0.0061 0.0062
United States USD 6.5821 7.6470 7.7538 7.2138
FINANCIAL INFORMATION 2009
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