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annual-and-sustainability-report-2014

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Notes to the consolidated accountslosses arise from the effects of changes in actuarial assumptions <strong>and</strong> from experienceadjustments (the effects of differences between the previous actuarialassumptions <strong>and</strong> what has actually occurred). When the calculation leads to anasset for the Group, the <strong>report</strong>ed value of the asset is limited to the present valueof future repayments from the plan or reduced future payments to the plan.Other provisions than pension provisionsA provision is <strong>report</strong>ed on the balance sheet when the Group has a legal orconstructive obligation as a result of an event <strong>and</strong> it is probable that an outflowof financial resources will be required to regulate the obligation <strong>and</strong> a reliableestimate of the amount can be made. Where the effect of the time when paymentis made is material, provisions are estimated by discounting the anticipated futurecash flow at an interest rate before tax that reflects current market estimates oftime value of money. The discount rate does not reflect such risks that are takeninto consideration in the estimated future cash flow.Changes in discounted provisions for dismantling, restoration or similarmeasures, which at the time of acquisition have also been <strong>report</strong>ed as tangiblenon-current assets, are <strong>report</strong>ed as follows: In cases where the change is due toa change in the estimated outflow of resources or a change in the discount rate,the cost of a non-current tangible asset is changed in an amount correspondingto the provision. The periodic change of the present value is recognised as afinancial expense. See also above under the heading Property, plant <strong>and</strong>equipment/Owned assets.Provisions are also <strong>report</strong>ed for onerous contracts, that is, where unavoidablecosts of meeting the obligations under the contract exceed the economic benefitsexpected to be received from the contract.Income taxesIncome tax comprises current tax <strong>and</strong> deferred tax. Income tax is <strong>report</strong>ed in theincome statement except when the underlying transaction is <strong>report</strong>ed in Othercomprehensive income or in equity, whereby also the associated tax effect is<strong>report</strong>ed in Other comprehensive income <strong>and</strong> equity, respectively.Current tax is tax to be paid or received for the current year, with the applicationof the tax rates that are established or, established in practice as of thebalance sheet date. Adjustments of tax paid attributable to previous periods arealso included in this.Deferred tax is calculated in accordance with the balance sheet method onthe basis of temporary differences between the <strong>report</strong>ed <strong>and</strong> taxable valuesof assets <strong>and</strong> liabilities. The following temporary differences are not taken intoaccount: temporary differences that arises with the initial recognition of goodwill<strong>and</strong> temporary differences on initial recognition of assets <strong>and</strong> liabilities that arenot business combinations <strong>and</strong> at the time of the transaction do not affect either<strong>report</strong>ed or taxable profit. Further, such temporary differences attributable toshares or participations in subsidiaries or associated companies that are notexpected to be reversed in the foreseeable future are not taken into accounteither. The valuation of deferred tax is based on how the <strong>report</strong>ed value of assetsor liabilities is expected to be realised or settled. Deferred tax is calculated inaccordance with the tax rates <strong>and</strong> tax rules that have been established or havebeen established in practice by the balance sheet date.Deferred tax assets concerning non-deductible temporary differences <strong>and</strong>tax-loss carryforwards are only <strong>report</strong>ed to the extent that it will be possible forthese to be used. The value of deferred tax assets is reduced when it is no longerconsidered likely that they can be used.Note 4 Important estimations <strong>and</strong> assessments inthe preparation of the financial statementsPreparation of the financial statements in accordance with IFRS requires thecompany’s executive management <strong>and</strong> Board of Directors to make estimations<strong>and</strong> assessments as well as to make assumptions that affect application of theaccounting policies <strong>and</strong> the <strong>report</strong>ed amounts of assets, liabilities, income <strong>and</strong> expenses.These estimations <strong>and</strong> assessments are based on historic experience <strong>and</strong>other factors that seem reasonable under current conditions. The results of theseestimations <strong>and</strong> assessments are then used to establish the <strong>report</strong>ed values ofassets <strong>and</strong> liabilities that are not otherwise clearly documented from other sources.The final outcome may deviate from the results of these estimations <strong>and</strong>assessments. The estimations <strong>and</strong> assessments are revised on a regular basis.The effects of changes in estimations are <strong>report</strong>ed in the period in which thechanges were made if the changes affected this period only or in the period thechanges were made <strong>and</strong> future periods if the changes affect both the currentperiod <strong>and</strong> future periods. Important estimations <strong>and</strong> assessments are describedbelow.Impairment testing for intangible assets <strong>and</strong> property, plant <strong>and</strong> equipmentThe Group has substantial values <strong>report</strong>ed on the balance sheet regarding intangibleassets <strong>and</strong> property, plant <strong>and</strong> equipment. These are tested for impairmentin accordance with the accounting policies described in Note 3 to the consolidatedaccounts, Accounting policies. The recoverable amount for cash-generating unitsis determined by calculating the value in use or fair value less costs to sell. Forthese calculations, certain estimations must be made regarding future cash flowsalong with other adequate assumptions regarding the required rate of return, forexample. See also Note 23 to the consolidated accounts, Intangible assets.For <strong>2014</strong> the Group <strong>report</strong>ed impairment losses of SEK 23,808 million (30,147).These impairment losses are described in more detail in Note 14 to the consolidatedaccounts, Impairment losses <strong>and</strong> reversed impairment losses.The largest impairment losses in terms of amount in <strong>2014</strong> pertain to productionassets, SEK 11,472 million (21,966), mainly in Germany <strong>and</strong> the Netherl<strong>and</strong>s, <strong>and</strong>goodwill, SEK 11,163 million (6,925), mainly related to Trading in the Netherl<strong>and</strong>s.Pension provisionsThe value of pension obligations for defined benefit pension plans is determinedthrough actuarial computations that are based on assumptions about the discountrate, the expected return on plan assets, future salary increases, inflation<strong>and</strong> demographic conditions. Every change in these assumptions affects thecalculated value of pension obligations.For pension provisions in Sweden, the discount rate was lowered to 2.5% from4.0% in the preceding year. For Sweden, through 2009 the judgement was madethat in the absence of an effective market for high quality corporate bonds, theinterest rate for government bonds was used instead as the discount rate. Asfrom 2010, the judgement has been made that the discount rate should be basedon mortgage bonds with high credit ratings, the market for which is large <strong>and</strong>liquid. In Germany, where the discount rate is based on high quality corporatebonds, the discount rate was lowered to 2.0% from 3.5% in the preceding year.For further information on pension provisions, see Note 41 to the consolidatedaccounts, Pension provisions.Provisions for future expenses for nuclear operationsProvisions for future expenses for nuclear operations, which pertain to futureobligations for h<strong>and</strong>ling the decommissioning of Vattenfall’s nuclear powerplants in Sweden <strong>and</strong> Germany as well as for h<strong>and</strong>ling nuclear waste, are basedon long-term cash flow estimations with respect to future expenses. Theselong-term cash flow estimations mainly pertain to technical plans, estimations onthe amount of the expenses, when in time these are expected to fall due, <strong>and</strong> thediscount rate. In many cases, these cash flow estimations must be approved bythe pertinent authorities.For provisions for future expenses for nuclear operations in Sweden, thediscount rate is unchanged at 4.0% (4.0%), compared with the preceding year. Thecorresponding discount rate in Germany was lowered to 4.0% from 4.75% in thepreceding year.For further information on provisions for future expenses for nuclear operations,see Note 42 to the consolidated accounts, Other interest-bearingprovisions.Other provisions than pension provisions <strong>and</strong> provisions for future expenses ofnuclear power operationsFor other types of provisions, such as provisions for future expenses for mining,gas <strong>and</strong> wind operations <strong>and</strong> other environmental measures/undertakings, <strong>and</strong>for personnel-related provisions for non-pension purposes, provisions for tax <strong>and</strong>legal disputes, or other provisions, the following discount rates are used: Sweden3.75% (3.75%), Germany 1.5%–4.0% (4.25%–4.75%), Netherl<strong>and</strong>s 1.5% (2.0%),Denmark 4.0% (4.0%) <strong>and</strong> the UK 4.0% (4.25%).For further information on these provisions, see Note 42 to the consolidatedaccounts, Other interest-bearing provisions.Income taxes <strong>and</strong> deferred taxesOn its balance sheet, Vattenfall <strong>report</strong>s deferred tax assets <strong>and</strong> liabilities thatare expected to be realised in future periods. In calculating these deferred taxes,certain assumptions <strong>and</strong> estimations must be made regarding future tax consequencespertaining to the difference between assets <strong>and</strong> liabilities <strong>report</strong>ed onthe balance sheet <strong>and</strong> their corresponding tax values.The estimations also take into account the fact that future earnings for theGroup’s units will correspond to previously <strong>report</strong>ed earnings, that applicabletax laws <strong>and</strong> tax rates will be unchanged in the countries in which the Group isactive, <strong>and</strong> that applicable rules for exercising tax loss carryforwards will not bechanged.The Group also <strong>report</strong>s future expenses arising out of ongoing tax audits or taxdisputes under Provisions. The outcome of these may deviate from the estimationsmade by Vattenfall.For further information on taxes, see Note 19 to the consolidated accounts,Taxes.Valuation of embedded derivativesA limited number of Vattenfall’s long-term electricity contracts include specificpricing clauses. For example, the price in an electricity contract may havecouplings to the price trend for commodities <strong>and</strong> indirectly also to exchange ratemovements, since the commodity prices in question are quoted in foreign currency.In such contracts, the clauses entail that the contracts contain embeddedderivatives. In valuations of these contracts containing embedded derivatives, thecompany’s executive management must make certain estimations <strong>and</strong> assessmentswhich could have a significant impact on Vattenfall’s earnings <strong>and</strong> financialpositions.Vattenfall Annual <strong>and</strong> <strong>sustainability</strong> <strong>report</strong> <strong>2014</strong> 91

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