Electrolux 2005 Annual Report Download - page 53

Notes
Electrolux Annual Report 2005 49
Note 1 continued
between 20% and 50% of the voting rights. Investments in associated
companies have been reported according to the equity method. This
means that the Group’s share of income after taxes in an associated
company is reported as part of the Group’s operating income. Invest-
ments in such a company are reported initially at cost, increased, or
decreased to recognize the Group’s share of the profit or loss of the
associated company after the date of acquisition. When the Group’s
share of losses in an associate equals or exceeds its interest in the
associate, the Group does not recognize further losses, unless it has
incurred obligations or made payments on behalf of the associate. Gains
or losses on transactions with associated companies, if any, have been
recognized to the extent of unrelated investors’ interests in the associate.
Related party transactions
All transactions with related parties are carried out on an arms-length
basis.
Foreign currency translations
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions.
The consolidated financial statements are presented in SEK,
which is the Parent Company’s functional and presentation currency.
The balance sheets of foreign subsidiaries have been translated
into Swedish krona 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 and whose functional
currency is other than the local currency have been remeasured into
their functional currency and the exchange-rate differences arising
from that remeasurement have been charged to income. When the
functional currency is the local currency, the financial statements
have been restated in accordance with IAS 29.
When a foreign operation is sold, exchange differences that were
recorded in equity are recognized in the income statement as part of
the gain or loss on sales.
Goodwill and fair value adjustments arising on the acquisition of a
foreign entity are treated as assets and liabilities of the foreign entity
and translated at the closing rate.
From January 1, 2005, the Group uses foreign-exchange deriva-
tive contracts and loans in foreign currencies in hedging certain net
foreign investments. Exchange-rate differences related to these con-
tracts and loans have been charged to Group equity, to the extent to
which there are corresponding translation differences.
Segment reporting
The Group’s primary segments (business areas) basically follow the
internal management of the Group, which are the basis for identifying
the predominant source and nature of risks and differing rates of
return facing the entity, and are based on the different business mod-
els for end-customers, indoor and outdoor users. The secondary
segments are based on the Group’s consolidated sales per geo-
graphical market.
The segments are responsible for the operating result and the net
assets used in their businesses, whereas finance net and taxes as
well as net borrowings and equity are not reported per segment. The
operating results and net assets of the segments are consolidated
using the same principles as for the total Group. The segments con-
sist of separate legal units as well as divisions in multi-segment legal
units where 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.
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 from sales of finished
products. Sales are recognized when the significant risks and
rewards connected with ownership of the goods have been trans-
ferred 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, such as installation or
repair of products, has been performed.
Government grants
Government grants relate to financial grants from governments, pub-
lic authorities, and similar local, national, or international bodies.
These are recognized when there is a reasonable assurance that the
Group will comply with the conditions attaching to them, and that the
grants will be received. Government grants related to assets are
included in the balance sheet as deferred income and recognized as
income over the useful life of the assets. In 2005, Government grants
recognized in the balance sheet amounted to SEK 40m (43). Govern-
ment grants that relate to expenses are recognized in the income
statement as a deduction of the related expense. In 2005, these
grants amounted to SEK 16m (36).
Items-affecting comparability
This item includes events and transactions with significant effects,
which are relevant for understanding the financial performance when
comparing income for the current period with previous periods,
including:
• Capital gains and losses from divestments of product groups or
major units
• Closedown 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
(which is sometimes known as the balance sheet liability method).
Deferred taxes are calculated using enacted tax rates. Taxes incurred
by the Electrolux Group are affected by appropriations and other tax-
able (or tax-related) transactions in the individual Group companies.
They are also affected by utilization of tax losses carried forward