ANNUAL REPORT 2004 - Skanska

Provisions for restoration of an asset are normally made in the course of utilization
of the asset, because the prerequisites for a provision at the time of acquisition
rarely exist.
The Swedish Financial Accounting Standards Council’s Standard No. 15,
“Intangible assets”
Intangible fixed assets are reported at acquisition cost minus accumulated amortization.
Writedowns occur on the basis of the Swedish Financial Accounting Standards
Council’s Standard No. 17, “Impairment of assets.” Goodwill arising from acquisitions
of companies is reported according to the rules in the Swedish Financial
Accounting Standards Council’s Standard No. 1:00, “Business combinations,” and is
commented upon in this section.
An intangible asset is an identifiable non-monetary asset without physical substance
and that is used for producing or supplying goods or services or for leasing
and administration. To be reported as an asset, it is necessary both that it be likely
that future economic advantages that are attributable to the asset will benefit the
company and that the acquisition value can be calculated in a reliable manner.
Intangible fixed assets are amortized over the period they are utilized, with consideration
given to any residual value at the end of the period. Purchased software
(major computer systems) is amortized over a maximum of five years.
Of its expenditures for research and development, Skanska only capitalizes expenditures
for such development work in which the intangible asset fulfills the Standard’s
criteria for capitalization. In this context, it should particularly be noted that
expenditures that were expensed in prior annual or interim financial statements
cannot later be booked as assets.
The Swedish Financial Accounting Standards Council’s Standard No. 17,
“Impairment of assets”
Writedowns are determined on the basis of the recoverable amount of assets,
which is the higher of net selling price and value in use. The latter concept is calculated
as the present value of estimated future payments that a company is expected
to receive by using the asset. Estimated residual value at the end of the period of
use is included in value in use. If the recoverable amount for an individual asset cannot
be determined, the recoverable amount shall instead be determined for the
cash-generating unit to which the asset belongs. A cash-generating unit is the smallest
group of assets that generates regular payment surpluses, independent of other
assets or groups of assets. For goodwill in the consolidated financial statements, a
cash-generating unit is equal to the Group’s business unit or other unit reporting to
the Parent Company.
Reversals of writedowns occur when the basis for the writedown has wholly or
partially disappeared.
The term “writedowns” is also used in conjunction with reappraisals of the value
of properties that have been reported as current assets. However, appraisal of these
properties occurs according to the lower value principle (using cost or fair value,
whichever is lower) and thus follows Standard No. 2:02 of the Swedish Financial
Accounting Standards Council, “Inventories.”
The Swedish Financial Accounting Standards Council’s Standard No. 4,
“Accounting for extraordinary items and related disclosure”
The application of this standard means that information for comparative purposes is
provided if the effects on earnings of special events and transactions of major
importance are specified. Examples of such events and transactions are capital gains
upon the divestment of business streams and of significant fixed assets, as well as
writedowns.
Note 9 provides information on operating items that are of interest for comparative
purposes.
The Swedish Financial Accounting Standards Council’s Standard No. 21,
“Borrowing costs”
Effective from January 1, 2002, borrowing costs during the construction of a building
are included in acquisition cost and are thus not shown as a financial expense in
the income statement. Generally speaking, capitalization of borrowing costs is limited
to assets that require a considerable period for completion, which in the case of
the Skanska Group means that the change of principle will only have an effect on
the valuation of current-asset properties and properties used in the Group’s own
operations (business properties). Capitalization occurs when expenditures included
in the acquisition value have arisen and activities to complete the building have
begun. Capitalization ceases when the building is completed. Borrowing costs during
an extended period when work to complete the building is suspended are not
capitalized. If separate borrowing has occurred for the project, the actual borrowing
cost is used. In other cases, the cost of the loan is calculated on the basis of the
Group’s borrowing cost.
The Swedish Financial Accounting Standards Council’s Standard No. 9,
“Income taxes”
Taxes are reported in the income statement except when the underlying transaction
is reported directly to shareholders’ equity, in which case the accompanying tax
effect is reported to shareholders’ equity. Current tax is tax to be paid or received
that is related to the year in question. This also includes adjustment of current tax
that is attributable to earlier periods. Deferred tax is calculated according to the balance
sheet method, on the basis of temporary differences between reported values
of assets and liabilities and values for tax purposes. The amounts are calculated
based on how the temporary differences are expected to be settled and by applying
the tax rates and tax rules that have been decided or announced as of the balance
sheet date. Temporary differences are not taken into account in goodwill in the consolidated
financial statements, nor in differences attributable to shares in subsidiaries
and associated companies that are not expected to be taxed within the foreseeable
future. In the consolidated financial statements, untaxed reserves are divided
into deferred tax liabilities and shareholders’ equity. Deferred tax assets related to
deductible temporary differences and loss carry-forwards are reported only to the
extent that they are likely to result in lower tax payments in the future.
The Swedish Financial Accounting Standards Council’s Standard No. 2:02,
“Inventories”
Except for properties that are used in Skanska’s own business, the Group’s property
holdings are reported as current assets, since these holdings are included in the
Group’s operating cycle strategy, which implies acquisition of undeveloped land or
redevelopment property, planning, pre-construction engineering, leasing, construction
and divestment, all during a period averaging about 3 to 5 years. The same
applies to holdings in property management companies if the properties belonging
to these companies would have been reported the same way if Skanska owned
them directly.
Current-asset properties are divided among Commercial Project Development,
Other commercial properties and Residential Project Development. Note 23 provides
information about these properties.
Properties constructed by the Group and that have been booked during the year
as completed assets have been valued in the consolidated financial statements at
directly accumulated costs plus a reasonable proportion of indirect costs. Effective
from January 1, 2002, interest expenses have been capitalized during the construction
period, as explained in the section on the Swedish Financial Accounting Standards
Council’s Standard No. 21, “Borrowing costs.”
Note 23 states estimated market values for Skanska’s current-asset properties. For
completed properties that include commercial space, market values have been calculated
partly in cooperation with external appraisers. For other current-asset properties,
the appraisal has been conducted internally.
Information on customary inventories of goods is found in Note 24. Temporary
inventories at construction sites are included in project expenditures and are not
reported as inventories.
Both current-asset properties and inventories of goods are valued item by item
according to the lower value principle, which means that a property or goods item is
booked at acquisition cost or net realizable value, whichever is lower.
The Swedish Financial Accounting Standards Council’s Standard No. 16,
“Provisions, contingent liabilities and contingent assets”
An obligation as a result of an event happening on the balance sheet date at the
latest is reported as a provision if it will probably result in an outflow of resources
and a reliable estimate of its amount can be made.
Skanska makes provisions for future expenses due to warranty obligations. The
estimate is based on estimated expenses for each project or, for groups of similar
projects, calculated on the basis of a ratio that has historically served as a satisfactory
provision for these expenses. For example, a percentage of net sales can serve as
such a ratio.
A provision is made for disputes related to completed projects if it is likely that the
dispute will result in an outflow of resources from the Group. Disputes related to
ongoing projects are taken into consideration in valuation of the project and are
thus not included in the balance sheet item “Provision for legal disputes.”
Provisions for restructuring expenses are reported when a detailed restructuring
plan has been adopted and the restructuring has either begun or been publicly
announced.
Contingent liabilities are possible obligations attributable to events that have
occurred and whose existence is confirmed only by the occurrence or non-occurrence
of one or more future events that are not entirely within the control of the Company.
Also reported as contingent liabilities are obligations attributable to events that have
occurred but that have not been reported as a liability or provision because it is not
likely that an outflow of resources will be required to settle the obligation or the size
of the obligation cannot be estimated with sufficient reliability.
50 Notes, including accounting and valuation principles – Skanska Annual Report 2004