Scania annual report 2003

Accounting principles
The Annual Report of the Scania Group has
been prepared in compliance with the Annual
Accounts Act, the current recommendations of
the Swedish Financial Accounting Standards
Council and the statements of its Urgent Issues
Task Force. The recommendations of the Council
are based on the international accounting
principles adopted by the International Accounting
Standards Board.
New accounting recommendations
in 2003
Beginning with 2003, Scania is applying the following
new recommendations issued by the
Swedish Financial Accounting Standards Council:
RR 2:02 Inventories, RR 22 Presentation of
financial statements, RR 24 Investment property,
RR 25 Segment reporting – lines of business
and geographic areas, RR 26 Events after the
balance sheet date, RR 27 Financial instruments:
Disclosure and classification and RR 28 Government
grants. The changes in Scania’s accounting
principles and in the presentation in the
financial statements resulting from these
recommendations are described below.
RR 25 Segment reporting – lines of
business and geographic areas
The operations of the Scania Group are managed
and reported primarily by line of business
and secondarily by geographical segments.
Scania’s primary segments are Vehicles and
Service plus Customer Finance. These two segments
have distinct products and differentiated
risk situations. The tied-up capital and accompanying
financing structure in Customer Finance
differs substantially from Vehicles and Service.
RR 27 Financial instruments:
Disclosure and classification
Aside from business risks in its operations,
Scania is also exposed to financial risks. Information
about these risks as well as Scania’s risk
management, including information about the
extent to which derivative instruments are used
for hedging and information about fair value, interest
rate refixing periods and maturity structures
are provided in Note 33.
Consolidated financial statements
The consolidated financial statements encompass
Scania AB and all subsidiaries. “Subsidiaries”
refers to companies in which Scania
directly or indirectly owns more than 50 percent
of the voting rights of the shares or otherwise
has a controlling influence.
Acquisitions of companies are reported
according to the purchase method of accounting.
This means that the assets and liabilities in
the acquired company are accounted at acquisition
values assigned by the purchaser according
to the acquisition analysis. If the acquisition
value of the shares exceeds the value of the
company’s net assets according to the acquisition
analysis, the difference is reported as goodwill
on consolidation. Only earnings arising after
the date of acquisition are included in the shareholders’
equity of the Group. Divested companies
are included in the consolidated financial
statements until and including the divestment
date.
Minority interests in net income and shareholders’
equity are reported separately.
Associated companies
“Associated companies” refers to companies
in which Scania has a long-term ownership interest
and possesses a significant influence.
Associated companies are accounted for using
the equity method. This means that in the consolidated
financial statements, holdings in associated
companies are valued at the Group’s
share of the shareholders’ equity in the associated
company after adjusting for the Group’s
share of surplus and deficit values, respectively.
In this way, Scania’s share of the earnings in an
associated company is included in consolidated
earnings.
Foreign currencies
When preparing the consolidated financial statements,
all items in the income statements of
foreign subsidiaries are translated to Swedish
kronor using the average exchange rates during
the year. All balance sheet items, except net income,
are translated using the exchange rates
on the respective balance sheet date (closing
day rate). This method is usually called the current
method. The changes in the shareholders’
equity of the Group that arise due to different
exchange rates on the closing day compared
to the exchange rate on the preceding closing
day are reported directly against shareholders’
equity. Aside from industrial operations in South
America and some markets in eastern Europe,
the functional currency of all subsidiaries is the
same as the local currency. For the abovementioned
businesses, the American dollar and
the euro, respectively, have been used as the
functional currency. The reasons for this have
been that cost and price levels have had a high
correlation to the dollar and euro, respectively.
Items (transactions) in local currencies have been
translated into the functional currency using the
monetary/non-monetary method, after which a
translation from the functional currency to Swedish
kronor occurred using the current method.
Receivables and liabilities in foreign currencies
are valued at the closing day rate. In applicable
cases, receivables and liabilities are valued
at the underlying hedging rate.
Currency forward contracts entered into
in order to hedge future commercial currency
flows are reported among earnings on the same
date that the commercial flow was realised. Premiums
received or paid for currency options that
are intended for hedging of currency flows in
business transactions are reported as income
or expenses over the contract period. Currency
forward contracts that do not meet the criteria
for hedge accounting are valued according to
the lower of cost or net realisable value.
When valuing financial assets and liabilities
where the original type of currency was changed
through a currency swap, the loan amount is
translated to Swedish kronor taking into account
the swap agreement.
Exchange rate differences on loans and other
financial instruments in foreign currencies that
are intended for hedging of foreign net assets
are reported directly against shareholders’ equity.
Classification in the balance sheet
Scania’s operating cycle, that is, the time that
elapses from the purchase of materials until
payment for goods delivered is received, is less
than twelve months. This means that a current
liability is a liability that falls due for payment within
twelve months, counting from the balance
sheet date. Other liabilities are classified as longterm.
Current assets are assets that are expected
to be realised within twelve months, counting
from the balance sheet date, or that consist of
liquid assets. Other assets are classified as fixed
assets.
Classification of financial and operating
leases (Scania as lessor)
Leasing contracts with customers are reported
as financial leases in cases where substantially all
risks and rewards associated with ownership of
the asset have been transferred to the lessee.
Other leasing contracts are classified as operating
leases and are reported among tangible fixed
assets.
Valuation principles
Assets, liabilities, provisions and derivatives have
been valued at acquisition value unless otherwise
stated.
Tangible fixed assets
Tangible fixed assets are reported at acquisition
value minus accumulated depreciation and any
impairment losses. If a tangible fixed asset includes
major components with a divergent useful
life (depreciation period), these are reported as
separate assets.
Depreciation is mainly carried out on a
straight-line basis over the estimated useful life
of an asset. In those cases where a residual
value exists, the asset is depreciated down to this
value. Useful life and depreciation methods are
taken into consideration regularly and adjusted in
case of changed circumstances. The following
useful life is applied:
Machinery and equipment 5–15 years
Industrial buildings
25 years
Land assets
No depreciation
Depreciation is charged to earnings for the
period. If there is any indication on the balance
sheet date that a tangible asset has diminished in
57 ANNUAL REPORT 2003