Scania Annual Report 2011

88
notes to the consolidated financial statements
NOTE 1 Accounting principles, continued
BALANCE SHEET – VALUATION PRINCIPLES
Tangible non-current assets including lease assets
Tangible fixed assets are carried at cost minus accumulated depreciation
and any impairment losses. A non-current asset is divided up
into components, each with a different useful life (depreciation period),
and these are reported as separate assets.
Machinery and equipment as well as lease assets have useful lives
of 3–12 years. The average useful life of buildings is 40 years, based on
50–100 years for frames, 20–40 years for frame supplements and inner
walls, 20–40 years for installations, 20–30 years for exterior surface
layer s and 10–15 years for interior surface layers. Land is not depreciated.
Depreciation occurs mainly on a straight-line basis over the
estimated useful life of an asset, and in those cases where a residual
value exists, the asset is depreciated down to this value. Useful life and
depreciation methods are examined regularly and adjusted in case of
changed circumstances.
Borrowing costs are included in the cost of assets that take a substantial
period of time to get ready.
Intangible non-current assets
Scania’s intangible assets consist of goodwill, capitalised expenditures
for development of new products and software. Intangible non-current
assets are accounted for at cost less any accumulated amortisation
and impairment losses. Borrowing costs are included in the cost of
assets that take a substantial period of time to get ready.
Goodwill
Goodwill arises when the cost of shares in a subsidiary exceeds the
fair value of that company’s acquired identifiable assets and liabilities
according to the acquisition analysis. Recognised goodwill has arisen
from acquisitions of distribution and dealer networks, which have
resulted in increased profitability upon their integration into the Scania
Group. Goodwill has an indefinite useful life and impairment testing is
done at least yearly.
Capitalised product development expenditures
Scania’s research and development activities are divided into a concept
phase and a product development phase. Expenditures during the
concept phase are charged to earnings as they arise. Expenditures
during the product development phase are capitalised, beginning on
the date when the expenditures are likely to lead to future economic
benefits. This implies that it is technically possible to complete the
intangible asset, the company has the intention and the potential to
complete it and use or sell it, there are adequate resources to carry
out development and sale, and remaining expenditures can be
reliably estimated. Impairment testing occurs annually for product
developmen t projects that have not yet gone into service, according to
the principles stated below. The amortisation of capitalised development
expenditures begins when the asset is placed in service and
occurs on a straight-line basis during its estimated useful life. For
capitalised product development expenditures, useful life is estimated
at between three and ten years.
Capitalised software development expenditures
Capitalised software development expenditures include expenditures
directly attributable to completion of the software. They are amortised
on a straight-line basis during the useful life of the software, which is
estimated at between three and five years.
Impairment testing of non-current assets
The carrying amounts of Scania’s intangible and tangible assets as well
as its shareholdings are tested on every closing day to assess whether
there is indication of impairment. This includes intangible assets with
an indeterminable useful life, which refer in their entirety to goodwill.
The carrying amounts for goodwill and intangible assets that have not
yet gone into service are tested at the end of every year regardless of
whether there is an indication of impairment loss or not.
If there is any indication that a non-current asset has an impairment
loss, the recoverable amount of the asset is estimated. The recoverable
amount of the asset is its fair value minus costs to sell or value in use,
whichever is higher. Value in use is an estimate of future cash flows that
is discounted by an interest rate that takes into account risk for that
specific asset. If it is not possible to attribute essentially independent
cash flows to an individual asset, during impairment testing assets shall
be grouped at the lowest level where it is possible to identify essentiall y
independent cash flows, a “cash-generating unit”. In impairment
testing, the carrying amount in the balance sheet is compared to the
estimated recoverable amount.
In cases where the estimated recoverable amount of an asset or
cash-generating unit is less than the carrying value, it is written down
to the recoverable amount. An impairment loss is recognised in the
income statement.
Inventories
Inventories are carried at the lower of cost and net realisable value
according to the first in, first out (FIFO) principle. An allocable portion of
indirect expenses is included in the value of the inventories, estimated
on the basis of normal capacity utilisation.
Financial assets and liabilities
Financial instruments are any form of contract that gives rise to a financial
asset in one company and a financial liability or equity instrument
in another company. This encompasses cash and cash equivalents,
interes t-bearing receivables, trade receivables, trade payables, borrowings
and derivative instruments. Cash and cash equivalents consist of
cash and bank balances as well as current (short-term) liquid investments
with a maturity amounting to a maximum of 90 days, which are
subject to an insignificant risk of fluctuations in value. “Current investments”
consist of investments with a longer maturity than 90 days.
financial reports Scania 2011