Electrolux 2010 Annual Report Download - page 133

Net investment hedge
Hedges of net investments in foreign operations are accounted for
similarly to cash flow hedges. Any gain or loss on the hedging
instrument relating to the effective portion of the hedge is recog-
nized in other comprehensive income; the gain or loss relating to
the ineffective portion is recognized immediately in the income
statement as financial items.
Gains and losses previously reported in other comprehensive
income are included in income for the period when the foreign
operation is disposed of, or when a partial disposal occurs.
Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting.
Changes in the fair value of any derivative instruments that do not
qualify for hedge accounting are recognized immediately in the
income statement as financial items or cost of goods sold depend-
ing on the purpose of the transaction.
Share-based compensation
The instruments granted for share-based compensation pro-
grams are either share options or shares, depending on the
program. An estimated cost for the granted instruments, based
on the instruments’ fair value at grant date, and the number of
instruments expected to vest is charged to the income statement
over the vesting period. The fair value of share options is calcu-
lated using a valuation technique, which is consistent with gener-
ally accepted valuation methodologies for pricing financial instru-
ments and takes into consideration factors that knowledgeable,
willing market participants would consider in setting the price. The
fair value of shares is the market value at grant date, adjusted for
the discounted value of future dividends which employees will not
receive. For Electrolux, the share-based compensation programs
are classified as equity-settled transactions, and the cost of the
granted instrument’s fair value at grant date is recognized over the
vesting period 3 years. At each balance-sheet date, the Group
revises the estimates to the number of shares that are expected to
vest. Electrolux recognizes the impact of the revision to original
estimates, if any, in the income statement, with a corresponding
adjustment to equity.
In addition, the Group provides for employer contributions
expected to be paid in connection with the share-based compen-
sation programs. The costs are charged to the income statement
over the vesting period. The provision is periodically revalued
based on the fair value of the instruments at each closing date.
Government grants
Government grants relate to financial grants from governments,
public authorities, and similar local, national, or international bod-
ies. These are recognized at fair value when there is a reasonable
assurance that the Group will comply with the conditions attached
to them, and that the grants will be received. Government grants
are included in the balance sheet as deferred income and recog-
nized as income matching the associated costs the grant is
intended to compensate.
New or amended accounting standards in 2010
The following standards or amendments issued by The Interna-
tional Accounting Standards Board (IASB) were applied as from
January 1, 2010. None of the new standards has had a significant
impact on the financial result or position.
IFRS 2 Share-Based Payment – Group Cash-settled Share-based
Payment Transactions (Amendment). The amendment effects the
measurement and reporting of share-based payment transactions
within a group of companies. After the implementation, Electrolux
will show the cost of share-based payments for employees in
subsidiaries as a liability to the Parent Company. This has no effect
on the Group’s financial statements.
IFRS 3 Business Combinations (Revised). The amendment has
an effect on how business combinations are accounted for, i.e.,
the accounting of transaction costs, possible contingent consid-
erations and business combinations achieved in stages. The
revised standard continues to apply the acquisition method to
business combinations but with some significant changes com-
pared with IFRS 3. For example, all payments to purchase a busi-
ness are recorded at fair value at the acquisition date, with contin-
gent payments classified as debt subsequently remeasured
through the statement of comprehensive income. There is a
choice on an acquisition-by-acquisition basis to measure the non-
controlling interest in the acquiree either at fair value or at the non-
controlling interest’s proportionate share of the acquiree’s net
assets. All acquisition-related costs are expensed. The amend-
ment to the standard will not have any impact on previous busi-
ness combinations.
IAS 27 Consolidated and Separate Financial Statements
(Revised). The change implies, among other things, that non-con-
trolling interests (previously named minority interests) shall always
be recognized even if the non-controlling interest is negative,
transactions with minority interests shall always be recorded in
equity and in those cases when a partial disposal of a subsidiary
results in that the entity loses control of the subsidiary, any remain-
ing interest should be revaluated to fair value with any gain or loss
recognized in the income statement. The change in the standard
will influence the accounting of future transactions.
IAS 39 Financial instruments: Recognition and Measurement –
Eligible Hedged Items (Amendment). The amendment clarifies
how the existing principles underlying hedge accounting should
be applied in two particular situations. It clarifies the designation
of a one-sided risk in a hedged item and inflation in a financial
hedged item. The amendment has no impact on Electrolux.
New or amended accounting standards after 2010
The following new standards and amendments to standards have
been issued but are not effective for the financial year beginning
January 1, 2011, and have not been early adopted. No significant
impact on the financial result or position is expected upon their
eventual application.
IFRS 7 Financial instruments: Disclosures – Transfers of Financial
Assets (Amendment)1). The change will provide users with more
information about an entity’s exposure to the risks of transferred
financial assets, particularly those that involve securitisation of
financial assets. The standard is not expected to have any impact
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