20% - Assa Abloy

Note 1 cont.
benefits can be reliably measured. Development costs so
reported are amortized over the expected useful life.
Development costs recorded as assets but not yet in use
are subject to annual impairment testing. Costs for development
of existing products are expensed as they are
incurred.
Borrowing costs
Borrowing costs are recognized as expenses in the period
in which they are incurred.
Tax on income
The income statement includes all tax that is to be paid or
received for the current year, adjustments relating to tax
due for previous years, and changes in deferred tax. Tax
sums have been calculated as nominal amounts in accordance
with the tax regulations in each country and in
accordance with tax rates that have either been decided or
have been notified and can confidently be expected to be
confirmed. For items reported in the income statement,
associated tax effects are also reported in the income
statement. The tax effects of items reported directly
against equity are themselves reported against equity.
Deferred tax is accounted for under the liability method.
This means that deferred tax is accounted for on all temporary
differences between the carrying amounts of assets
and liabilities and their respective tax bases. Deferred tax
receivables relating to tax losses carried forward or other
future tax allowances are reported to the extent that it is
probable that the allowance can be set against taxable
income in future taxation. Deferred tax liabilities relating to
temporary differences resulting from investments in subsidiaries
are not reported in the consolidated financial
statements since the Parent company can control the time
at which the temporary differences are cancelled and it is
not considered likely that such cancellation will occur in
the foreseeable future. Deferred tax receivables and
deferred tax liabilities are offset when there is a legal right
to do so and when the deferred tax amounts concern the
same tax authority.
Cash flow statement
The cash flow statement has been prepared according to
the indirect method. The reported cash flow includes only
transactions involving cash payments.
Cash and cash equivalents
‘Cash and cash equivalents’ covers cash and bank balances
and short-term financial investments with durations of less
than three months from the date of acquisition.
Goodwill and acquisition-related intangible assets
Goodwill represents the positive difference between the
cost of acquisition and the fair value of the Group’s share of
the acquired company’s net identifiable assets at the date
of acquisition, and is reported at cost less accumulated
impairment losses. Goodwill is allocated to Cash-Generating
Units (CGU) and each year is systematically tested for
impairment using a valuation model based on discounted
future cash flow. Deferred tax receivables based on local tax
rates are reported in terms of tax-deductible goodwill
(with corresponding reduction of the goodwill value). Such
deferred tax receivables are expensed as the tax deduction
is utilized.
ASSA ABLOY
Annual Report 2007
69
Other acquisition-related intangible assets consist chiefly
of various types of intangible rights such as brands, patents
and customer relationships. Identifiable acquisition-related
intangible assets are initially recognized at fair value at the
date of acquisition and subsequently at cost less accumulated
amortization and impairment losses. Amortization is
on a straight-line basis over estimated useful life. Acquisition-related
intangible assets with indefinite useful life are
tested for impairment every year in the same way as goodwill,
as described above.
Other intangible assets
An intangible asset that is not acquisition-related is
reported only if it is likely that the future economic benefits
associated with the asset will flow to the Group and if the
cost of the asset can be measured reliably. Such an asset is
initially recognized at cost and is amortized over its estimated
useful life, usually between three and five years. Its
carrying amount is cost less accumulated amortization and
impairment losses.
Tangible assets
Tangible assets are reported at cost less accumulated
depreciation and impairment losses. Cost includes expenditure
that can be directly attributed to the acquisition of
the asset. Subsequent expenditure is added to the carrying
amount if it is probable that economic benefits associated
with it will flow to the Group and if the cost can be reliably
measured. Expenditure on repairs and maintenance is
expensed as it is incurred. Depreciable amount is the cost
of an asset less its residual value. No depreciation is applied
to land. For other assets, cost is depreciated over estimated
useful life, which for the Group leads to the following
depreciation periods (on average):
• office buildings, 50 years
• industrial buildings, 25 years
• machinery and other technical plant, 7–10 years
• equipment and tools, 3–6 years.
An asset’s residual value and useful life are reviewed at each
financial year-end and adjusted when needed. Profit or loss
on the disposal of a tangible asset is recognized in the
income statement as ‘Other operating income’ or ‘Other
operating expenses’, based on the difference between the
selling price and the carrying amount.
Leasing
The Group’s leasing is chiefly operational leasing. The leasing
payments are expensed at a constant rate over the period
of the contract and are reported as operating costs.
Impairment
Assets with indefinite useful life are not amortized but are
tested for impairment on an annual basis. For impairment
testing purposes assets are grouped at the lowest organizational
level where there are separate identifiable cash
flows, so called Cash-Generating Units (CGU). For assets
that are depreciated/amortized, impairment testing is carried
out when events or circumstances indicate that the
carrying amount may not be recoverable.
When impairment has been established, the value of
the asset is reduced to its recoverable amount. The recoverable
amount is the higher of the asset’s fair value less
costs to sell, and its value in use.