Scania annual report 2003

value, the recoverable amount of the asset is
estimated. If the recoverable amount is less than
the carrying amount, the asset is written down
to its recoverable amount.
In case of a financial lease, where Scania is
the lessee, the leased asset is reported as a
tangible asset and the future commitment as a
liability.
Intangible fixed assets
Scania’s intangible assets consist of goodwill on
consolidation plus capitalised expenditures for
development of new products as well as software.
Goodwill on consolidation arises when the
acquisition value of shares in a subsidiary
exceeds the value of that company’s net assets
according to the acquisition analysis. The amortisation
period for goodwill on consolidation is
established on the basis of individual examination.
In deciding the amortisation period, the
main principles used are as follows:
– Small acquisitions that are a supplement to
existing operations and that are integrated with
them are amortised in five years.
– Larger acquisitions that involve establishment
of operations in new markets are amortised in
ten years if they are established operations with
a strong market position.
Scania’s research and development activities
are classified into a research phase and a development
phase. Those expenditures that arise
during the research phase are charged to earnings
as they arise. Expenditures during the development
phase are capitalised as an intangible
fixed asset, beginning on the date when the
expenditures are highly likely to lead to future
economic benefits. The amortisation of capitalised
development expenditures begins when the
asset is placed in service and continues during
its estimated useful life. For capitalised product
development expenditures, the average useful
life is currently estimated at five years. For capitalised
software development expenditures, the
useful life is estimated at between three and five
years.
If there is any indication on the balance sheet
date that an intangible asset has diminished in
value, the recoverable amount of the asset is
estimated. If the recoverable amount is less than
the carrying amount, the asset is written down
to its recoverable amount.
Inventories
Inventories are valued at the lower of acquisition
value 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.
Short-term investments
Short-term investments are valued at the lower of
accrued acquisition value and fair value.
Liquid assets
Liquid assets consist of cash and bank balances
as well as short-term investments. In some
cases, short-term investments consist of investments
with maturities that are formally longer
than 90 days, but which can easily be turned
into liquid assets.
Financial instruments
Financial assets, including interest-bearing
receivables in Customer Finance, are reported
at accrued acquisition value minus probable
credit losses. Provisions for bad debts are made
individually, based on the customer’s payment
capacity and the value of the collateral.
Financial liabilities are reported at accrued
acquisition value. Premiums or discounts as well
as transaction costs when issuing securities are
allocated over the maturity of the loan.
Financial assets and liabilities in foreign
currencies are valued according to the principles
stated under “Foreign currencies”. For a description
of the reporting of derivatives, see also
Note 33.
Provisions
Provisions are recognised if an obligation
(legal or informal) exists as a result of a past
event. It must also be deemed likely that an outflow
of resources will be required to settle the
obligation and that the amount can be reliably
estimated. Provisions for factory warranties on
vehicles sold during the year are based on the
applicable warranty terms and conditions and
the estimated quality situation.
Provisions for pensions
Provisions for pensions are equivalent to the
actuarial value of the collectively agreed ITP
occupational pension plan and all voluntary
pension obligations. The item “Provisions for
pensions” includes foreign subsidiaries, with
pension commitments reported in compliance
with the principles applicable in each respective
country, provided that these signify that earned
pension rights are reported as expenses.
Revenue recognition
Revenue from the sale of goods and services is
reported when substantially all risks and rewards
are transferred to the buyer. Sales revenue is
reduced, where applicable, by discounts provided.
If the sale is combined with a repurchase
obligation or a residual value guarantee the transaction
is reported as, in accordance with normal
industry practice, an operating lease provided
that substantial risks remain with Scania. Leasing
income, as well as interest income in the
case of hire purchase financing, is recognised
over the underlying contract period in compliance
with the terms of the contract. Invoicing for
both repair and maintenance agreements and
for vehicles that could not yet be recognised as
revenue, as provided above, is reported as prepaid
income.
Research and development expenses
Consists of the research and development expenditures
that arise during the research phase
plus amortisation during the period of capitalised
development expenditures (see “Intangible
assets”).
Selling expenses
Selling expenses are defined as operating expenses
in sales and service companies plus
goodwill amortisations related to acquisitions
of sales and service companies and costs of
corporate-level commercial resources.
Administrative expenses
Administrative expenses are defined as costs of
corporate management as well as staff units
and corporate service departments.
Borrowing costs
Borrowing costs in the form of interest are
charged to earnings when they arise.
Taxes
The Group’s total tax consists of current and
deferred tax. Deferred tax is recognised in case
of a difference between the carrying amount of
assets and liabilities and their fiscal value (“temporary
difference”). Full provision is made for
deferred tax liabilities. Deferred tax assets are
recognised only to the extent that it is likely that
they can be utilised.
Related party transactions
Related party transactions occur on market
terms. The Scania Group’s related parties consist
of the companies in which Scania can exercise
a controlling or significant influence in terms
of the financial and operating decisions that are
made. The circle of related parties also includes
those companies and physical persons that are
able to exercise a controlling or significant influence
over the financial and operating decisions
of the Scania Group.
Government grants
Government grants received that are attributable
to operating expenses reduce these expenses.
Government grants related to investments reduce
the gross acquisition value of the fixed
assets.
ANNUAL REPORT 2003
58