Volvo 2009 Annual Report Download - page 78

Notes to consolidated financial statements
where hedge accounting is not considered to be fulfilled, unrealized
gains and losses up until the maturity date of the financial instrument
will be charged to the financial net in the income statement.
– During 2009 Volvo has applied hedge accounting for certain net
investments in foreign operations. The current result for such hedges
is reported in a separate component in shareholders’ equity. In the
event of a divestment, the accumulated result from the hedge is rec-
ognized in the income statement.
See notes 36 and 37 for the valuation of all financial instruments in
the Volvo Group and for details and further description on principles
for economic hedging, hedge accounting and changes to the policies
for hedging and hedge accounting during 2009 and going forward.
Research and development expenses
Volvo applies IAS 38, Intangible Assets, for reporting of research and
development expenses. In accordance with this standard, expend-
itures for development of new products, production systems and soft-
ware shall be reported as intangible assets if such expenditures with
a high degree of certainty will result in future financial benefits for the
company. The acquisition value for such intangible assets shall be
amortized over the estimated useful life of the assets. In order for
these development expenditures to be reported as assets, a number
of criteria must be met. For example, it must be possible to prove the
technical functionality of a new product or software prior to its devel-
opment being reported as an asset. In normal cases, this means that
expenditures are capitalized only during the industrialization phase of
a product development project. Other research and development
expenses are charged to income as incurred.
Tangible and intangible non-current assets
Volvo applies acquisition values for valuation of intangible and tangi-
ble assets. Borrowing costs are included in the acquisition value of so
called qualifying assets from January 1, 2009.
Investment property is reported at acquisition cost. Information
regarding estimated value of investment property is based on dis-
counted cash flow projections. The estimation is performed by the
Group’s Real Estate business unit. The required return is based on
current property market conditions for comparable properties in com-
parable locations.
In connection with participation in industrial cooperation projects
together with other companies, such as the aircraft engine projects
that Volvo Aero participates in, Volvo pays in certain cases an entrance
fee to participate. These entrance fees are capitalized as intangible
assets.
Depreciation, amortization and impairment
Depreciation is made on a straight-line basis based on the acquisition
value of the assets, adjusted in appropriate cases by write-downs, and
estimated useful lives. Impairment tests for depreciable non-current
assets are performed if there are indications of impairment at the bal-
ance sheet date.
Goodwill is reported as an intangible non-current asset with indefin-
ite useful life. For non-depreciable non-current assets such as good-
will, impairment tests are performed annually, as well as if there are
indications of impairments during the year, through calculation of the
asset’s recovery value. If the calculated recovery value is less than the
carrying value, a write-down is made to the asset’s recovery value. See
note 14 for goodwill.
Depreciation periods
Capitalized type-specific tools 2 to 8 years
Operational leases 3 to 5 years
Machinery 5 to 20 years
Buildings and Investment property 25 to 50 years
Land improvements 20 years
Trademarks 20 years
Distribution networks 10 years
Product and software development 3 to 8 years
Aircraft engine projects 20 years
Non-current assets held for sale and discontinued operations
Volvo applies IFRS 5, Non-current Assets Held for Sale and Discon-
tinued Operations. In a global group like Volvo, processes are continu-
ously ongoing regarding the sale of assets or groups of assets at
minor values. In cases in which the criteria for being classified as a
non-current asset held for sale are fulfilled and the asset or group of
assets is not of minor value, the asset or group of assets and the
related liabilities are reported on a separate line in the balance sheet.
The asset or group of assets are tested for impairment and, if impaired
valued at fair value after deduction for selling expenses. The balance
sheet items and the income effect resulting from the revaluation to
fair value less costs to sell are normally reported in the segment Group
headquarter functions and other, until the sale is completed and the
result from it is assigned to the other segments.
Inventories
Inventories are reported at the lower of cost, in accordance with the
first-in, first-out method (FIFO), or net realizable value. The acquisition
value is based on the standard cost method, including costs for all
direct manufacturing expenses and the apportionable share of the
capacity and other related manufacturing costs. The standard costs
are tested regularly and adjustments are made based on current con-
ditions. Costs for research and development, selling, administration
and financial expenses are not included. Net realizable value is calcu-
lated as the selling price less costs attributable to the sale.
Share-based payments
Volvo applies IFRS 2, Share-based Payments for share-based incen-
tive programs. IFRS 2 distinguishes between “cash-settled” and
“equity-settled”, in Volvo’s case, shares. The Volvo program includes
both a cash-settled and an equity-settled part. The value of the
equity-settled payments is determined at the grant-date, recognized
as an expense during the vesting period and credited to equity. The
fair value is calculated according to share price reduced by dividend
connected to the share before the allotment. The additional social
costs are reported as a liability, revalued at each balance sheet date
in accordance with UFR 7, issued by the Swedish Financial Reporting
Board. The cash-settled payment is revalued at each balance sheet
day and is reported as an expense during the vesting period and as a
short term liability. An assessment whether the terms for allotment will
be fulfilled is made continuously. If the assessment changes, the
expense will be adjusted. The employee stock option program which
ended in 2008 was accounted for in accordance with the transition
principles of IFRS 2, meaning that the equity-settled part was
accounted for at fair value at each reporting period and provided for
as an accrued expense over the vesting period. See note 34.
FINANCIAL INFORMATION 2009
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