Review of 2010 â USD version - Skanska
Review of 2010 â USD version - Skanska
Review of 2010 â USD version - Skanska
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extending a forward contract that meets future cash flow is included among operating<br />
expenses. If the amount has a significant impact, it shall be excluded when determining<br />
degree <strong>of</strong> completion.<br />
A construction consortium that has been organized to perform a single construction<br />
assignment is not an independent legal entity, since the participating co-owners are also<br />
directly liable for its obligations. <strong>Skanska</strong>’s share <strong>of</strong> the construction assignment is thus<br />
recognized as a business operated by <strong>Skanska</strong>.<br />
Most construction contracts contain clauses concerning warranty obligations on the<br />
part <strong>of</strong> the contractor, with the contractor being obliged to remedy errors and omissions<br />
discovered within a certain period after the contracted work has been handed over to<br />
the customer. Such obligations may also be required by law. The main principle is that a<br />
provision for warranty obligations must be calculated for each individual project. Provision<br />
must be made continuously during the course <strong>of</strong> the project and the estimated total<br />
provision must be included in the project’s expected final expenses. For units with similar<br />
projects, the provision may occur in a joint account instead and be calculated for the unit<br />
as a whole with the help <strong>of</strong> ratios that have historically provided a satisfactory provision<br />
for these expenses.<br />
IAS 18, “Revenue”<br />
Revenue other than project revenue is recognized in compliance with IAS 18. For lease<br />
income, this means that the revenue is divided evenly over the period <strong>of</strong> the lease.<br />
The total cost <strong>of</strong> benefits provided is recognized as a reduction in lease income on a<br />
straight-line basis over the lease period. Compensation for services performed that<br />
does not comprise project revenue is recognized as revenue based on the degree <strong>of</strong><br />
completion on the closing day, which is normally determined as services performed<br />
on the closing day in proportion to the total to be performed. The difference that may<br />
then arise between services invoiced and services performed is recognized in the statement<br />
<strong>of</strong> financial position among “Other operating receivables” (or “Other operating<br />
liabilities”). Deliveries <strong>of</strong> merchandise are reported as revenue when the essential risks<br />
and rewards associated with ownership <strong>of</strong> the merchandise have been transferred to<br />
the buyer.<br />
A dividend is recognized as revenue when the right to receive payment has been<br />
established.<br />
Income from the sale <strong>of</strong> financial investments is recognized when the significant risks<br />
and rewards associated with ownership <strong>of</strong> the instruments have been transferred to the<br />
buyer and the Group no longer controls the instruments.<br />
Interest is recognized using an interest rate that provides a uniform return on the<br />
asset in question, which is achieved by applying the effective interest method. Effective<br />
interest is the interest rate at which the present value <strong>of</strong> all future payments is equal to<br />
the carrying amount <strong>of</strong> the receivable.<br />
Revenue is carried at the fair value <strong>of</strong> what is received or will be received. This means<br />
that receivables arising at the time <strong>of</strong> divestments are regarded as having been acquired<br />
at fair value (discounted present value <strong>of</strong> future incoming payments) if the interest<br />
rate on the date <strong>of</strong> the purchase is below the market interest rate and the difference is<br />
significant.<br />
Revenue is recognized only if it is probable that the economic benefits will flow to<br />
the Group. If uncertainty later arises with regard to the possibility <strong>of</strong> receiving payment<br />
for an amount that has already been recognized as revenue, the amount for which payment<br />
is no longer probable is instead recognized as an expense, instead <strong>of</strong> as an adjustment<br />
<strong>of</strong> the revenue amount that was originally recognized.<br />
A divestment <strong>of</strong> a portion <strong>of</strong> a Group company to non-controlling interests is recognized<br />
only as an equity transaction when controlling interest has not been lost. Thus no<br />
gain or loss arises from such a transaction.<br />
IFRIC 12, “Service Concession Arrangements”<br />
IFRIC 12, which affects <strong>Skanska</strong> Infrastructure Development, deals with the question <strong>of</strong><br />
how the operator <strong>of</strong> a service concession should account for the infrastructure as well as<br />
the rights it receives and the obligations it undertakes under the agreement. The operator<br />
constructs or upgrades infrastructure (construction or upgrade services) used to<br />
provide a public service and maintains the infrastructure (operation services) for a specified<br />
period <strong>of</strong> time. The consideration (payment) that the operator receives is allocated<br />
between construction or upgrade services and operation services according to the relative<br />
fair values <strong>of</strong> the respective services. Construction or upgrade services are reported<br />
in compliance with IAS 11 and operation services in compliance with IAS 18. For construction<br />
or upgrade services, the consideration may be rights to a financial asset or an<br />
intangible asset. If the operator has an unconditional right in specified or determinable<br />
amounts, it is a financial asset. If the operator instead has the right to charge the users <strong>of</strong><br />
the public service, it is an intangible asset.<br />
IFRIC 15, “Agreements for the Construction <strong>of</strong> Real Estate”<br />
IFRIC 15 is applied to accounting for revenue and expenses when a company undertakes<br />
the construction <strong>of</strong> real estate. The interpretation addresses the issue <strong>of</strong> whether<br />
accounting for construction <strong>of</strong> real estate should be in accordance with IAS 11 or IAS<br />
18, and when the revenue from the construction <strong>of</strong> real estate should be recognized.<br />
It assumes that the company retains neither an involvement nor effective control over<br />
the real estate to an extent that would preclude recognition <strong>of</strong> the consideration as revenue.<br />
IAS 11 shall be applied when the buyer can specify the structural elements <strong>of</strong> the<br />
design <strong>of</strong> the real estate before construction begins, or specify major changes once construction<br />
is in progress. Otherwise IAS 18 shall be applied. If IAS 11 is applied, the percentage<br />
<strong>of</strong> completion method is used. If IAS 18 is applied, it must first be determined<br />
whether the agreement is an agreement for the rendering <strong>of</strong> services or for the sale <strong>of</strong><br />
goods. If the company is not required to acquire or supply construction materials, it is<br />
an agreement for rendering <strong>of</strong> services, and revenue is recognized according to the percentage<br />
<strong>of</strong> completion method. If the company is required to provide services together<br />
with construction materials, it is an agreement for the sale <strong>of</strong> goods. Revenue is then<br />
recognized when, among other things, the company has fulfilled the criterion that it has<br />
transferred to the buyer the significant risks and rewards associated with ownership,<br />
which normally occurs upon the transfer <strong>of</strong> legal ownership, which <strong>of</strong>ten coincides with<br />
the date the purchaser takes possession <strong>of</strong> the property.<br />
For Residential Development and Commercial Property Development, IFRIC 15<br />
means that revenue recognition <strong>of</strong> a property divestment occurs only when the purchaser<br />
gains legal ownership <strong>of</strong> the property, which normally coincides with taking possession<br />
<strong>of</strong> the property. For residential projects in Finland and Sweden that are initiated<br />
by <strong>Skanska</strong>, housing corporations and cooperative housing associations are <strong>of</strong>ten used<br />
to reach the individual home buyer. In these cases revenue recognition occurs when the<br />
home buyer takes possession <strong>of</strong> the home.<br />
IAS 17, “Leases”<br />
The accounting standard distinguishes between finance and operating leases. A finance<br />
lease is characterized by the fact that the economic risks and rewards incidental to<br />
ownership <strong>of</strong> the asset have substantially been transferred to the lessee. If this is not the<br />
case, the agreement is regarded as an operating lease.<br />
Finance leases<br />
Finance lease assets are recognized as an asset in the consolidated statement <strong>of</strong> financial<br />
position. The obligation to make future lease payments is recognized as a non-current or<br />
current liability. Leased assets are depreciated during their respective useful life. When<br />
making payments on a finance lease, the minimum lease payment is allocated between<br />
interest expense and reduction <strong>of</strong> the outstanding liability. Interest expense is allocated<br />
over the lease period in such a way that each reporting period is charged an amount<br />
equivalent to a fixed interest rate for the liability recognized during each respective period.<br />
Variable payments are recognized among expenses in the periods when they arise.<br />
Assets leased according to finance leases are not recognized as property, plant and<br />
equipment, since the risks incidental to ownership have been transferred to the lessee.<br />
Instead a financial receivable is recognized, related to future minimum lease payments.<br />
Operating leases<br />
As for operating leases, the lease payment is recognized as an expense over the lease<br />
term on the basis <strong>of</strong> utilization, and taking into account the benefits that have been provided<br />
or received when signing the lease.<br />
The Commercial Property Development business stream carries out operating lease<br />
business. Information on future minimum lease payments (rents) is provided in Note 40,<br />
which also contains other information about leases.<br />
IAS 16, “Property, Plant and Equipment”<br />
Property, plant and equipment are recognized as assets in the statement <strong>of</strong> financial<br />
position if it is probable that the Group will derive future economic benefits from them<br />
and the cost <strong>of</strong> an asset can be reliably estimated. Property, plant and equipment are<br />
recognized at cost minus accumulated depreciation and any impairment losses. Cost<br />
includes purchase price plus expenses directly attributable to the asset in order to bring<br />
it to the location and condition to be operated in the intended manner. Examples <strong>of</strong><br />
directly attributable expenses are delivery and handling costs, installation, ownership<br />
documents, consultant fees and legal services. Borrowing costs are included in the cost<br />
<strong>of</strong> self-constructed property, plant and equipment. Impairment losses are applied in<br />
compliance with IAS 36.<br />
The cost <strong>of</strong> self-constructed property, plant and equipment includes expenditures for<br />
materials and compensation to employees, plus other applicable manufacturing costs<br />
that are considered attributable to the asset.<br />
94 Notes, including accounting and valuation principles <strong>Skanska</strong> <strong>Review</strong> <strong>of</strong> <strong>2010</strong> – <strong>USD</strong> <strong>version</strong>