Electrolux 2010 Annual Report Download - page 134

on Electrolux financial results or position. The standard is effective
for annual periods beginning on or after July 1, 2011.
IFRS 9 Financial instruments1). This standard addresses the clas-
sification and measurement of financial instruments and is likely to
affect the Group’s accounting for its financial assets and liabilities.
The Group is yet to assess IFRS 9’s full impact. The standard is
effective for annual periods beginning on or after January 1, 2013.
New interpretations of accounting standards
None of the new interpretations by The International Financial
Reporting Interpretation Committee (IFRIC), which are applicable
to Electrolux, have, or are expected to have, a significant impact
on neither financial result, nor position.
The following interpretation was applied during 2010.
IFRIC 17 Distribution of Non-cash Assets to Customers. This inter-
pretation provides guidance on accounting for arrangements whereby
an entity distributes non-cash assets to shareholders either as a dis-
tribution of reserves or as dividends. According to IFRIC 17 assets
classified as hold for distribution should be treated in accordance with
IFRS 5s’ classification, presentation and measurement requirements.
1) This amendment or replacement has not been adopted by the EU at the
writing date.
Critical accounting policies and key sources
of estimation uncertainty
Use of estimates
Management of the Group has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these finan-
cial statements in conformity with IFRS. Actual results could differ
from these estimates.
The discussion and analysis of the Group’s results of opera-
tions and financial condition are based on the consolidated finan-
cial statements, which have been prepared in accordance with
IFRS, as adopted by the EU. The preparation of these financial
statements requires management to apply certain accounting
methods and policies that may be based on difficult, complex or
subjective judgments by management or on estimates based on
experience and assumptions determined to be reasonable and
realistic based on the related circumstances. The application of
these estimates and assumptions affects the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the balance-sheet date and the reported amounts of
net sales and expenses during the reporting period. Actual results
may differ from these estimates under different assumptions or
conditions. Electrolux has summarized below the accounting
policies that require more subjective judgment of the manage-
ment in making assumptions or estimates regarding the effects of
matters that are inherently uncertain.
Asset impairment
Non-current assets, including goodwill, are evaluated for impair-
ment yearly or whenever events or changes in circumstances indi-
cate that the carrying amount of an asset may not be recoverable.
An impaired asset is written down to its recoverable amount based
on the best information available. Different methods have been
used for this evaluation, depending on the availability of information.
When available, market value has been used and impairment
charges have been recorded when this information indicated that
the carrying amount of an asset was not recoverable. In the major-
ity of cases, however, market value has not been available, and the
fair value has been estimated by using the discounted cash-flow
method based on expected future results. Differences in the esti-
mation of expected future results and the discount rates used could
have resulted in different asset valuations.
Property, plant and equipment are depreciated on a straight-line
basis over their estimated useful lives. Useful lives for property, plant
and equipment are estimated between 10 and 40 years for buildings
and land improvements and between 3 and 15 years for machinery,
technical installations and other equipment. The carrying amount for
property, plant and equipment at year-end 2010 amounted to
SEK14,630m. The carrying amount for goodwill at year-end 2010
amounted to SEK 2,295m. Management regularly reassesses the
useful life of all significant assets. Management believes that any
reasonably possible change in the key assumptions on which the
asset’s recoverable amounts are based would not cause their carry-
ing amounts to exceed their recoverable amounts.
Deferred taxes
In the preparation of the financial statements, Electrolux estimates
the income taxes in each of the taxing jurisdictions in which the
Group operates as well as any deferred taxes based on tempo-
rary differences. Deferred tax assets relating mainly to tax loss
carry-forwards, energy tax-credits and temporary differences are
recognized in those cases when future taxable income is expected
to permit the recovery of those tax assets. Changes in assump-
tions in the projection of future taxable income as well as changes
in tax rates could result in significant differences in the valuation of
deferred taxes. As of December 31, 2010, Electrolux had a net
amount of SEK 2,175m recognized as deferred tax assets in
excess of deferred tax liabilities. As of December 31, 2010, the
Group had tax loss carry-forwards and other deductible tempo-
rary differences of SEK 4,461m, which have not been included in
computation of deferred tax assets.
Current taxes
Electrolux provisions for uncertain outcome of tax audits and
tax litigations are based on management’s best estimates and
recorded in the balance sheet. These estimates might differ
from the actual outcome and the timing of the potential effect
on Electrolux cash flow is normally not possible to predict.
In recent years, tax authorities have been focusing on transfer pri-
cing. Transfer-pricing matters are normally very complex, include
high amounts and it might take several years to reach a conclusion.
The total provisions related to transfer-pricing issues under
dispute and included in tax payables amounted to SEK 100m (400)
at year-end 2010. One major transfer-pricing audit was settled in
late 2009 and has impacted Electrolux cash flow negatively by
SEK 340m during 2010.
Trade receivables
Receivables are reported net of allowances for doubtful receiv-
ables. The net value reflects the amounts that are expected to be
annual report 2010 | part 2 | notes, all amounts in SEKm unless otherwise stated
Cont. Note 1
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