Annual Report 2011 - Skanska

Note01Continuedcontract premium is accrued until maturity and is recognized as interest income or aninterest expense.IFRS 5, “Non-current Assets Held for Sale and Discontinued Operations”A discontinued operation is a portion of a company’s operations that represents aseparate line of business or a major operation in a geographic area and is part of asingle coordinated plan to dispose of a separate line of business or a major operationcarried out in a geographic area, or is a Group company acquired exclusively with aview to resale.Classification as a discontinued operation occurs upon divestment, or at an earlierdate when the operation meets the criteria to be classified as held for sale. A disposalgroup that is to be shut down can also qualify as a discontinued operation if it meetsthe above size criteria.If a non-current asset or disposal group is to be classified as held for sale, the asset(disposal group) must be available for sale in its present condition. It must also behighly probable that the sale will occur. In order for a sale to be highly probable,a decision must have been made at management level, and active efforts to locatea buyer and complete the plan must have been initiated. The asset or disposal groupmust be actively marketed at a price that is reasonable in relation to its fair value, and itmust be probable that the sale will occur within one year. Skanska also applies the principlethat with regard to a single non-current asset, its value must exceed EUR 20 M.Depreciation or amortization of a non-current asset is not made as long as it isclassified as held for sale.Non-current assets classified as held for sale as well as disposal groups andliabilities attributable to them are presented separately in the statement offinancial position.IAS 28, “Investments in Associates”Reported as associated companies are companies in which the Skanska Groupexercises significant but not controlling influence, which is presumed to be the casewhen the Group’s holding amounts to a minimum of 20 percent and a maximum of50 percent of the voting power. In addition, it is presumed that this ownership is oneelement of a long-term connection and that the holding shall not be reported as ajoint venture.The equity methodFrom the date when Skanska obtains a significant influence, holdings in associatedcompanies are included in the consolidated financial statements according to theequity method. Any difference upon acquisition between the cost of the holding andthe owner company’s share of net fair value of the associated company’s identifiableassets, liabilities and contingent liabilities is recognized in compliance withIFRS 3. The equity method implies that the carrying amount of the Group’s shares inassociated companies is equivalent to the Group’s proportion of their share capital aswell as goodwill in the consolidated accounts and any other remaining consolidatedsurpluses and deductions of internal profits. The Group’s share of the associatedcompany’s income after financial items is recognized as “Income from joint venturesand associated companies” in the income statement. Any depreciation/amortizationand impairment losses on acquired surpluses are taken into account. The Group’sproportion of the tax expense of an associated company is included in “Taxes.”Dividends received from an associated company reduce the carrying amount of theinvestment.When the Group’s share of recognized losses in an associated company exceedsthe carrying amount of the holdings in the consolidated financial statements, thevalue of the holding is reduced to zero. Settlement of losses also occurs againstlong-term unsecured financial assets which, in substance, form part of Skanska’s netinvestment in the associated company and are thus recognized as shares. Continuedlosses are not recognized unless the Group has provided guarantees to cover lossesarising in the associated company.Elimination of internal profitsWhen profits arise from transactions between the Group and an associatedcompany, the portion equivalent to the Group’s share of ownership is eliminated.If the carrying amount of the Group’s holding in the associated company is belowthe elimination of internal profit, the excess portion of the elimination is recognizedamong provisions. The elimination of the internal profit is adjusted in later financialstatements based on how the asset is used or when it is divested.If a loss arises from a transaction between the Group and an associated company,the loss is eliminated only if it does not correspond to an impairment loss on the asset.If a profit or loss has arisen in the associated company, the elimination affects theincome recognized under “Income from joint ventures and associated companies.”The equity method is applied until the date when significant influence ceases.Note 20 provides information about associated companies.IAS 31, “Interests in Joint Ventures”Companies operated jointly with other companies, and in which control is exercisedjointly according to agreement, are reported as joint ventures.The equity method, which is described in the section on associated companies,is applied when preparing the consolidated financial statements. The consolidatedincome statement recognizes the Group’s share of the income in joint ventures afterfinancial items among “Income from joint ventures and associated companies.”Any depreciation, amortization and impairment losses on acquired surpluses havebeen taken into account. The Group’s share of the tax expense of a joint venture isincluded in “Taxes.” Dividends received from a joint venture are subtracted from thecarrying amount of the investment.In connection with infrastructure projects, the Group’s investment may includeeither holdings in or subordinated loans to a joint venture. Both are treated in theaccounts as holdings.Elimination of internal profitsInternal profits that have arisen from transactions between the Group and a jointventure are eliminated based on the Group’s share of ownership. If the carryingamount of the Group’s holding in a joint venture is below the elimination of internalprofit, the excess portion of the elimination is recognized among provisions. Theelimination of the internal profit is adjusted in later financial statements basedon how the asset is used or when it is divested. If a loss arises from a transactionbetween the Group and a joint venture, the loss is eliminated only if it does notcorrespond to an impairment loss on the asset. If a profit or loss has arisen in a jointventure, the elimination affects the income recognized under “Income from jointventures and associated companies.”Note 20 provides information about joint ventures.IAS 11, “Construction Contracts”Project revenues are reported in compliance with IAS 11. This implies that the incomefrom a construction project is reported successively as the project accrues. Thedegree of accrual is mainly determined on the basis of accumulated project expensesin relation to estimated accumulated project expenses upon completion. If theoutcome cannot be estimated in a satisfactory way, revenue is reported as equivalentto accumulated expenses on the closing day (zero recognition). Anticipated losses areimmediately reported as expenses.Recognized as project revenue are the originally agreed contract amount as wellas additional work, claims for special compensation and incentive payments, butnormally only to the extent that these have been approved by the customer. All servicesthat are directly related to the construction project are covered by IAS 11. Otherservices are covered by IAS 18. For projects related to construction of real estate,IFRIC 15 provides guidance about in which cases IAS 11 or IAS 18 shall be applied.If substantial non-interest-bearing advance payments have been received, theadvance payment is discounted and recognized as an interest-bearing liability. Thedifference between a nominal amount and a discounted amount constitutes projectrevenue and is recognized as revenue according to the percentage of completionmethod. The upward adjustment in the present value of the advance payment insubsequent financial statements is reported as an interest expense.The difference between accrued project revenue and a not yet invoiced amountis recognized as an asset (gross amount due from customers for contract work)according to the percentage of completion method. Correspondingly, the differencebetween an invoiced amount and not yet accrued project revenue is reported asa liability (gross amount due to customers for contract work). Major machinerypurchases that are intended only for an individual project and significant start-upexpenses are included to the extent they can be attributed to future activities asclaims on the customer and are included in the asset or liability amount stated in thisparagraph, however without affecting accrued project revenue.Tendering expenses are not capitalized but are charged against earnings on acontinuous basis. Tendering expenses that arose during the same quarter that the orderwas received, and that are attributable to the project, may be treated as projectexpenditures. In the case of infrastructure projects, instead of the quarter when theorder was received, this applies to the quarter when the Group receives the status ofpreferred bidder, provided that it is deemed highly probable that a final agreement110 Notes, including accounting and valuation principles Skanska Annual Report 2011