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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 customer. If, however,
the sale of goods is combined with a buy-back agreement or a re sidual
value guarantee, the sale is accounted for as an operating lease
transaction if significant risks of the goods are retained in Volvo.
Revenues are then recognized over the period of the residual value
commitment. If the residual value risk commitment is not significant,
independent from the sale transaction or in combination with a com-
mitment 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 provision is reported to reflect the estimated residual value risk (see
Provisions 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 corres-
pond 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 either at amortized cost or at fair value
through profit and loss.
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
derivatives that Volvo has decided not to apply hedge accounting on,
and derivates that are not part of an evidently effective hedge
accounting. Gains and losses on these assets are recognized in the
income statement. Short-term investments that are reported at fair
value through profit and loss mainly consist of interest-bearing finan-
cial instruments and are reported in note 21. Derivatives used for
hedging interest-rate exposure in the customer financing portfolio are
Exchange rates Average rate Closing rate
Country Currency 2009 2010 2009 2010
Brazil BRL 3.8444 4.0925 4.1375 4.0560
Canada CAD 6.7006 6.9973 6.8885 6.8085
China CNY 1.1192 1.0643 1.0600 1.0300
Denmark DKK 1.4275 1.2823 1.3926 1.2086
Euro EUR 10.6305 9.5502 10.3623 9.0113
Great Britain GBP 11.9322 11.1319 11.4913 10.5538
Japan JPY 0.0819 0.0823 0.0785 0.0835
Norway NOK 1.2172 1.1926 1.2440 1.1530
South Korea KRW 0.0060 0.0062 0.0062 0.0060
United States USD 7.6470 7.2060 7.2138 6.8038
FINANCIAL INFORMATION 2010
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