Scania Annual Report 2011

132
notes to the consolidated financial statements
NOTE 31 Financial instruments
Financial assets in the Scania Group mainly consist of financial leases
and hire purchase receivables that have arisen in the Financial Service s
segment due to financing of customers’ vehicle purchases. Other
financia l assets of significance are trade receivables from independent
dealerships and end customers in the Vehicles and Services segment
plus short-term investments and cash and cash equivalents. Scania’s
financial liabilities consist largely of loans, mainly taken out to fund
Financia l Service s’ lending and leasing to customers and, to a lesser
exten t, to fund capital employed in Vehicles and Services. Financial
assets and liabilities give rise to various kinds of risks, which are largely
managed by means of various derivative instruments. Scania uses
derivative instruments, mainly for the purpose of:
– Transforming corporate-level borrowings in a limited number of
currencies to the currencies in which the financed assets are
denominated.
– Transforming the interest rate refixing period for borrowings in
Financial Services as well as achieving the desired interest rate
refixing period for other borrowings.
– Converting future commercial payments to functional currency.
– To a lesser extent, converting surplus liquidity in foreign currencies
to SEK.
For financial instruments that are carried at accrued cost, fair value
disclosures are provided in the table below. The carrying amounts of
interest-bearing assets and liabilities in the balance sheet may diverge
from their fair value, among other things as a consequence of changes
in market interest rates. To establish the fair value of financial assets
and liabilities, official market quotations have been used for those
asset s and liabilities that are traded in an active market.
In those cases where assets and liabilities are not traded in an
active market, fair value has been established by discounting future
payment flows at current market interest rates and then converting to
SEK at the current exchange rate.
Fair value of financial instruments such as trade receivables, trade
payables and other non-interest-bearing financial assets and liabilities
that are recognised at accrued cost minus any impairment losses, is
regarded as coinciding with the carrying amount.
Impairment losses on assets occur only when there is reason to
believe that the counterparty will not fulfill its contractual obligations,
not as a consequence of changes in market interest rates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In Scania’s balance sheet, items carried at fair value are mainly
derivatives and current investments. For derivatives for which hedge
accounting is not applied and certain current investments, fair value
adjustment is carried via the income statement. Derivatives attributable
to cash flow hedging are carried at fair value via “Other comprehensive
income”. Fair value is established according to various levels,
defined in IFRS 7, that reflect the extent to which market values have
been utilise d. Current investments and cash and cash equivalents
are carrie d according to Level 1, i.e. quoted prices in active markets
for identical assets, and amounted to SEK 1,192 m. (1,047, –). Other
assets that are carried at fair value refer to derivatives. These assets
are carrie d according to Level 2, which is based on data other than the
quoted prices that are part of Level 1 and refer to directly or indirectly
observable market data. These items are carried under other noncurrent
assets, other current assets, other non-current liabilities and
other current liabilities and amounted to SEK 545 m. (1,106, –259) net.
financial reports Scania 2011