Electrolux 2004 Annual Report Download - page 49

Electrolux Annual Report 2004 45
Notes
some allocations of costs and net assets are made. Operating costs
not included in the segments are shown under Group Common costs
and include mainly costs for corporate functions.
Sales between segments are made on market conditions with arms-
length principles.
Definition of Group companies
The consolidated financial statements include AB Electrolux and all
companies in which the Parent Company at year-end directly or indi-
rectly owns more than 50% of the voting rights referring to all shares
and participations, or otherwise exercises decisive control.
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 2004, the Group comprised 358 (353) operating units,
and 276 (284) companies.
Associated companies
Investments in associated companies, i.e., those in which the Parent
Company directly or indirectly owned 20–50% of the voting rights at
year-end, or otherwise exercised significant influence, 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 corresponding 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.
Related party transactions
All transactions with related parties are carried out on an arms-length
basis.
Translation of financial statements in foreign subsidiaries
According to RR 8, “Effects of changes in exchange rates“, foreign
subsidiaries can be classified as either foreign operations that are
integral to the operations of the reporting entity, or as independent
foreign entities. The method used to translate the financial statements
of a foreign subsidiary depends on how it is classified. An independ-
ent entity accumulates cash and other monetary items, incurs
expenses and generates income, all substantially in its local currency.
Electrolux subsidiaries are classified as independent foreign entities.
Based on this classification, 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.
Prior to consolidation, the financial statements of subsidiaries in
countries with highly inflationary economies have been remeasured
into their functional currency and the exchange-rate differences arising
from that remeasurement have been charged to income. The remea-
sured financial statements have then been translated into Swedish
kronor following the same method as for other independent foreign
entities. Consequently, changes in equity due to high inflation are
reported in the consolidated income statement.
Note 1 continued
Hedging of net investment
The Parent Company uses foreign exchange derivative contracts and
loans in foreign currencies in hedging certain net foreign investments.
Exchange-rate differences related to these contracts and loans have
been charged to Group equity after deduction of taxes, to the extent
to which there are corresponding translation differences.
General accounting and valuation principles
Revenue recognition
Sales are recorded net of VAT (Value-Added Tax), specific sales taxes,
returns and trade discounts. Revenues arise almost exclusively from
sales of finished products. Sales are recognized when the significant
risks and rewards connected with ownership of the goods have been
transferred to the buyer and the Group retains neither a continuing right
to dispose of the goods, nor effective control of those goods and when
the amount of revenue can be measured reliably. This means that sales
are recorded when goods have been put at the disposal of the customers
in accordance with agreed terms of delivery. Revenues from services
are recorded when the service has been performed.
Government grants
Government grants are recognized when there is reasonable assurance
that the Group will comply with the conditions attaching to them, and
that the grants will be received. Grants related to assets are included in
the balance sheet as “prepaid income“ and recognized as income over
the useful life of the asset. In the income statement, grants are deducted
in reporting the related expense. In 2004, grants recognized in the income
statement amounted to SEK 36m (55).
Other operating income and expenses
These items include profits and losses arising from the sale of fixed
assets and the divestment of operations, as well as the share of
income in associated companies. Other operating expenses also
include amortization of goodwill. See Notes 5 and 6 on page 51.
Items affecting comparability
This item includes events and transactions with significant effects in
comparing income for the current period with previous periods, including:
• Capital gains and losses from divestments of product groups or
major units
• Close-down or significant down-sizing of major units or activities
• Restructuring initiatives with a set of activities aimed at reshaping
a major structure or process
• Significant impairment
• Other major non-recurring costs or income
Borrowing costs
Borrowing costs are recognized as an expense in the period in which
they are incurred.
Taxes
Taxes include current and deferred taxes applying the liability method.
Deferred taxes are calculated using enacted tax rates. Taxes incurred
by the Electrolux Group are affected by appropriations and other taxable
(or tax-related) transactions in the individual Group companies. They are
also affected by utilization of tax losses carried forward referring to pre-
vious years or to acquired companies. This applies to both Swedish