Electrolux 2013 Annual Report Download - page 111

Revenue recognition
Sales are recorded net of value-added tax, specific sales taxes, returns,
and trade discounts. Revenues arise from sales of finished products and
services. 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 rev-
enue 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. Revenues from sale of extended warranty are recognized on
a linear basis over the contract period.
Items affecting comparability
This item includes events and transactions with significant effects, which
are relevant for understanding the financial performance when compar-
ing 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 that are directly attributable to the acquisition, con-
struction or production of qualifying assets are capitalized as a part of
the cost of those assets. Other borrowing costs are recognized in the
financial net as an expense in the period in which they are incurred.
Taxes
Deferred income tax is provided in full, using the liability method, on tem-
porary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements.
However, the deferred income tax is not accounted for if it arises from ini-
tial recognition of an asset or liability in a transaction other than a busi-
ness combination that at the time of the transaction affects neither
accounting nor taxable profit or loss. Deferred taxes are calculated using
enacted or substantially enacted tax rates by the balance sheet date.
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 for-
ward referring to previous years or to acquired companies. Deferred tax
assets on tax losses and temporary differences are recognized to the
extent it is probable that they will be utilized in future periods. Deferred
tax assets and deferred tax liabilities are shown net when they refer to the
same taxation authority and when a company or a group of companies,
through tax-consolidation schemes, etc., have a legally enforceable right
to set off tax assets against tax liabilities.
Deferred income tax is provided on temporary differences arising on
investments in subsidiaries and associates, except where the timing of
the reversal of the temporary difference is controlled by the Group and it
is probable that the temporary difference will not be reversed in the fore-
seeable future.
Intangible fixed assets
Goodwill
Goodwill is reported as an indefinite life intangible asset at cost less
accumulated impairment losses.
Trademarks
Trademarks are reported at historical cost less amortization and impair-
ment. The Electrolux trademark in North America, acquired in 2000, is
regarded as an indefinite life intangible asset and is not amortized. One of
the Group’s key strategies is to develop Electrolux into the leading global
brand within the Group’s product categories. This acquisition has given
Electrolux the right to use the Electrolux brand worldwide, whereas it
previously could be used only outside of North America. All other trade-
marks are amortized over their useful lives, estimated to 5 to 10 years,
using the straight-line method.
Product development expenses
Electrolux capitalizes expenses for certain own development of new
products provided that the level of certainty of their future economic ben-
efits and useful life is high. The intangible asset is only recognized if the
product is sellable on existing markets and that resources exist to com-
plete the development. Only expenditures which are directly attributable
to the new product’s development are recognized. Capitalized develop-
ment costs are amortized over their useful lives, between 3 and 5 years,
using the straight-line method.
Computer software
Acquired computer software licenses are capitalized on the basis of the
costs incurred to acquire and bring to use the specific software. These
costs are amortized over useful lives, between 3 and 5 years, using the
straight-line method with the exception for the development costs of the
Group’s common business system, which amortization is based on the
usage and go-live dates of the entities and continues over useful life. The
applied principle gives an amortization period of approximately 10 years
for the system.
Client relationships
Client relationships are recognized at fair value in connection with acqui-
sitions. The values of these relationships are amortized over the esti-
mated useful lives, between 5 and 15 years, using the straight-line
method.
Property, plant and equipment
Property, plant, and equipment are stated at historical cost less straight-
line accumulated depreciation, adjusted for any impairment charges.
Historical cost includes expenditures that are directly attributable to the
acquisition of the items including borrowing costs where applicable.
Subsequent costs are included in the asset’s carrying amount only when
it is probable that future economic benefits associated with the item will
flow to the Group and are of material value. Each part of an item of prop-
erty, plant and equipment with a cost that is significant in relation to the
total cost of the item is depreciated separately. This applies mainly to
components for machinery. All other repairs and maintenance are
charged to the income statement during the period in which they are
incurred. Land is not depreciated as it is considered to have an unlimited
useful life. All other depreciation is calculated using the straight-line
method and is based on the following estimated useful lives:
Buildings and land improvements 10–40 years
Machinery and technical installations 3–15 years
Other equipment 3–10 years
Impairment of non-financial assets
At each balance sheet date, the Group assesses whether there is any
indication that any of the company’s non-current assets are impaired. If
any such indication exists, the company estimates the recoverable
amount of the asset. The recoverable amount is the higher of an asset’s
fair value less cost to sell and value in use. An impairment loss is recog-
nized by the amount of which the carrying amount of an asset exceeds
its recoverable amount. The discount rates used reflect the cost of capi-
tal and other financial parameters in the country or region where the
asset is in use. For the purposes of assessing impairment, assets are
grouped in cash-generating units, which are the smallest identifiable
groups of assets that generate cash inflows that are largely independent
of the cash inflows from other assets or groups of assets.
The value of goodwill and other intangible assets with indefinite life is
continuously monitored, and is tested for yearly impairment or more
often if there is indication that the asset might be impaired. Goodwill is
allocated to the cash generating units that are expected to benefit from
the combination.
Non-financial/current assets (other than goodwill) that suffered impair-
ment are reviewed for possible reversal of the impairment at each report-
ing date.
109ANNUAL REPORT 2013