Electrolux 2001 Annual Report Download - page 54

50 ELECTROLUX ANNUAL REPORT 2001
Note 1 Accounting and
valuation principles
General accounting principles
The consolidated financial statements are
prepared in accordance with accounting
principles generally accepted in Sweden,
thereby applying the standards of the
Swedish Financial Accounting Standards
Council.These accounting principles dif-
fer in certain respects from those in the
United States. For a description of signifi-
cant differences, see Note 27 on page 64.
In the interest of achieving comparable
financial information within the Group,
Electrolux companies apply uniform
methods for reporting obsolescence on
inventories, provisions for doubtful
receivables, provisions for guarantee com-
mitments, depreciation on fixed assets,
etc., irrespective of national fiscal legisla-
tion. In some countries it is permissible
to make additional allocations, which are
reported under “Restricted equity”, after
deduction of deferred taxes.
The following should be noted:
• A number of new standards from the
Swedish Financial Standards Council
went into effect as of January 1, 2001.
The implementation of the new stand-
ards has had no material effect on the
consolidated financial statements.
Electrolux will apply the new standards
RR1:00, RR15, RR16 and RR17 as
of January 1, 2002.
• The cash flow statement has been
prepared according to the indirect
method. In order to eliminate the
effects of changes in exchange rates
from year to year, both the opening and
closing balances have been translated at
average exchange rates for the year.
• Computation of net debt/equity, equi-
ty/assets and net assets includes minori-
ty interests in adjusted shareholders’
equity. Definitions of these ratios are
given on page 73.
Principles applied for consolidation
The consolidated financial statements
have been prepared in accordance with
Standard RR 1:96 of the Swedish
Financial Accounting Standards Council
and involve application of the purchase
method, whereby the assets and liabilities
in a subsidiary on the date of acquisition,
are evaluated to determine the acquisition
value to the Group.Any differences
between the acquisition price and the
market value of the acquired net assets
are reported as goodwill or negative
goodwill.
Definition of Group companies
The consolidated financial statements
include AB Electrolux and all companies
in which the parent company at year-end
directly or indirectly owns more than
50% of the voting rights referring to all
shares and participations, or in which the
company exercises decisive control in
other ways.
The following applies to acquisitions
and divestments during the year:
• Companies acquired during the year
have been included in the consolidated
income statement as of the date of
acquisition.
• Companies divested during the year
have been included in the consolidated
income statement up to and including
the date of divestment.
At year-end 2001, the Group comprised
370 (429) operating units, and 290 (334)
companies.
Associated companies
Major investments in associated compa-
nies, i.e. those in which the parent com-
pany directly or indirectly owned
20–50% of the voting rights at year-end,
have been reported according to the
equity method.This means that the
Group’s share of income before taxes in
an associated company is reported as part
of the Group’s operating income and the
Group’s share of taxes is reported as part
of the Group’s taxes. Investments in such
a company are reported at a value corre-
sponding to the Group’s share of the
company’s equity, adjusted for possible
over and undervalue. Joint ventures are
reported according to the equity method.
Minor investments in associated companies
and joint ventures are reported as shares
and participations at acquisition cost.
Goodwill
Goodwill is reported as an intangible
asset and is depreciated over the estimated
useful life, which is usually 10–20 years.
Goodwill arising from strategic acquisi-
tions is depreciated over 20–40 years.
Acquisitions are an important compo-
nent of the Group’s expansion, and are
often made in competition with other
companies whose accounting practices
differ from the Swedish, e.g. with respect
to goodwill. Electrolux applies a depreci-
ation period of 40 years for the goodwill
arising from the strategically important
acquisitions of Zanussi,White Consoli-
dated Industries, American Yard Products
and Email. In accordance with the transi-
tional rules in the recommendation of
the Swedish Financial Accounting
Standards Council regarding corporate
reporting, Note 11 on page 54 reports
the effects that would arise if the depreci-
ation period for these four acquisitions
was limited to 20 years.
Book values are examined each year
to determine whether a write-down
exceeding the planned amortization is
necessary.
Translations of financial statements
in foreign subsidiaries
The balance sheets of foreign subsidiaries
have been translated into Swedish kronor
at year-end rates. Income statements have
been translated at the average rates for the
year.Translation differences thus arising
have been taken directly to equity.
The above principles have not been
applied for subsidiaries in countries with
highly inflationary economies.Translation
differences referring to these companies
have been charged against income.This
method enables increases and/or decreases
in equity in countries with highly infla-
tionary economies to be reported in their
entirety in the consolidated income state-
ment.
Hedging of net investment
The parent company uses forward con-
tracts and loans in foreign currencies as
hedges for the net foreign investment.
Exchange rate differences related to these
contracts and loans have been charged to
the Group’s equity after deduction of
taxes, to the extent to which there are
corresponding translation differences.
Other accounting and valuation
principles
Revenue recognition
Revenue is recognized when the signifi-
cant risks and rewards of ownership of
the goods has been transferred to the
buyer. Sales of products and services are
recorded and invoiced on the date of
shipment. Net sales include the sale value
less VAT (Value-Added Tax), specific sales
taxes, returns and trade discounts.
Costs of research and development
These costs are reported on a current
basis and are included in “Cost of goods
sold” in the consolidated income state-
ment.
Tangible fixed assets
Tangible fixed assets are stated at histori-
cal cost less straight-line accumulated
depreciation, which is based on the esti-
mated useful life of the asset.These are:
Notes to the financial statements
Amounts in SEKm unless otherwise stated