Volvo Group—Research & Development Costs

EXCERPTED WITH PERMISSION FROM

CASES IN FINANCIAL REPORTING

EIGHTH EDITION
ISBN: 978-1-61853-122-3

MICHAEL DRAKE
ELLEN ENGEL
D. ERIC HIRST
MARY LEA MCANALLY

© Copyright 2015 by Cambridge Business Publishers, LLC. All rights reserved. No part of this
publication may be reproduced in any form for any purpose without the written permission of the
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 Volvo Group—Research & Development Costs

Volvo Group supplies commercial vehicles including trucks, buses, construction equipment, engines and drive
systems as well as aircraft engine components. Volvo Group annually invests roughly 13 billion Swedish Krona in
research and development activities focused on achieving new technical breakthroughs focused largely on reducing
environmental impact and meeting future emissions and other regulations globally. Volvo Group also offers its
customers financial solutions. The Group, headquartered in Torslanda, Sweden, has about 90,000 employees,
production facilities in 19 countries, and sales activities in some 180 countries. Source: Company annual report.

Learning Objectives
• Assess the cost components included in research and development (R&D) expenditures.
• Compare and evaluate alternative accounting treatments of research and development costs.
• Understand how capitalizing product development costs affects the balance sheet, the income
statement, and the statement of cash flows.
• Adjust financial statement amounts to compare U.S. and international methods of R&D accounting.

Refer to the 2009 financial statements of Volvo Group. The company prepares financial statements under
International Financial Reporting Standards (IFRS).
 Concepts 
a. The 2009 income statement shows research and development expenses of SEK 13,193 (millions of
Swedish Krona). What types of costs are likely included in these amounts?
b. Volvo Group follows IAS 38—Intangible Assets, to account for its research and development
expenditures (see IAS 38 excerpts at the end of this case). As such, the company capitalizes certain
R&D costs and expenses others. What factors does Volvo Group consider as it decides which R&D
costs to capitalize and which to expense?
c. The R&D costs that Volvo Group capitalizes each period (labeled Product and software development
costs) are amortized in subsequent periods, similar to other capital assets such as property and
equipment. Notes to Volvo’s financial statements disclose that capitalized product and software
development costs are amortized over three to eight years. What factors would the company consider
in determining the amortization period for particular costs?
d. Under U.S. GAAP, companies must expense all R&D costs. In your opinion, which accounting
principle (IFRS or U.S. GAAP) provides financial statements that better reflect costs and benefits of
periodic R&D spending?
 Process 
e. Refer to footnote 14 where Volvo reports an intangible asset for “Product and software development.”
Assume that the product and software development costs reported in footnote 14 are the only R&D
costs that Volvo capitalizes.
i. What is the amount of the capitalized product and software development costs, net of
accumulated amortization at the end of fiscal 2009? Which line item on Volvo Group’s balance
sheet reports this intangible asset?
ii. Create a T-account for the intangible asset “Product and software development,” net of
accumulated amortization. Enter the opening and ending balances for fiscal 2009. Show entries
in the T-account that record the 2009 capitalization (capital expenditures) and amortization. To
simplify the analysis, group all other account activity during the year and report the net impact
as one entry in the T-account.
Volvo Group—Research & Development Costs
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f. Refer to Volvo’s balance sheet, footnotes, and the eleven-year summary. Assume that the product and
software development costs reported in footnote 14 are the only R&D costs that Volvo capitalizes.
i. Complete the table below for Volvo’s Product and software development intangible asset.
(in SEK millions) 2007 2008 2009
1) Product and software development costs 2,057 2,150
capitalized during the year
2) Total R&D expense on the income
statement
3) Amortization of previously capitalized 2,357 2,864
costs (included in R&D expense)
4) Total R&D costs incurred during the
year = 1 + 2 - 3

ii. Provide the journal entry that Volvo Group prepared to record 1) total 2009 R&D costs
incurred during the year and 2) the amortization of previously capitalized product and software
development costs. Consider your answer to part a, above to determine which accounts are
affected. (Hint: you will not be able to allocate specific amounts for each of the accounts you
credit, but you should be able to identify the accounts that are likely to be credited.)
iii. What proportion of Total R&D costs incurred did Volvo Group capitalize (as product and
software development intangible asset) in each of the three years?
 Analysis 
g. Assume that you work as a financial analyst for Volvo Group and would like to compare Volvo’s
research and development expenditures to a U.S. competitor, Navistar International Corporation.
Navistar follows U.S. GAAP that requires that all research and development costs be expensed in the
year they are incurred. You gather the following information for Navistar for fiscal year end October
31, 2007 through 2009.

(in US $ millions) 2007 2008 2009

Total R&D costs incurred during the year, 375 384 433
expensed on the income statement
Net sales, manufactured products 11,910 14,399 11,300

Total assets 11,448 10,390 10,028

Operating income before tax (73) 191 359

i. Use the information from Volvo’s eleven-year summary to complete the following table:

(in SEK millions) 2007 2008 2009

Net sales, industrial operations

Total assets, from balance sheet 321,647

ii. Calculate the proportion of total research and development costs incurred to net sales from
operations (called, net sales from manufactured products, for Navistar) for both firms. How
does the proportion compare between the two companies?

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h. Assume that you work as a financial analyst for Navistar International Corporation. Your firm is
considering the financial statement implications of adopting IFRS including IAS 38. As such, you
decide to prepare pro forma (i.e., “as if”) information for Navistar assuming the company had adopted
IAS 38 at the start of fiscal 2007. Refer to financial statement information for Navistar, in part g,
above.
To create the pro forma information, assume the following.
• Beginning in fiscal 2007, 30% of Navistar’s total R&D expenditures could be considered
product development costs and would be eligible for capitalization under IAS 38.
• Internal forecasts predict that capitalized product development costs have an estimated useful
life of four years. Had Navistar followed IAS 38, they would have amortized the
development costs on a straight-line basis over four years, beginning the year after
capitalization.
• Your analysis should consider only the impact of adopting IAS 38. All other Navistar activity
is reported using U.S. GAAP.
i. What would Navistar have reported as Operating income before tax in fiscal 2007, 2008, and
2009 under IFRS? Is the difference significant?
ii. What amount for “Capitalized product development costs, net” would Navistar have reported
on its balance sheet at the end of each of the three years under IFRS? Calculate the relative size
of the intangible asset each year compared to total assets. How does this compare to the relative
size for Volvo Group? (Volvo Group’s 2007 balance sheet included “Capitalized product
development costs, net” of 11,169, in SEK millions.) In your opinion, is this a significant asset
on Navistar International’s balance sheet?
iii. How would cash be affected for fiscal 2009 had Navistar followed IFRS? Would the cash flow
statement be different? Assume that the tax treatment of R&D expenditures is not related to the
accounting treatment.

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Internally Generated Intangible Assets (excerpt from IAS 38—Intangible Assets)

51. It is sometimes difficult to assess whether an internally generated intangible asset qualifies for
recognition because of problems in:
(a) identifying whether and when there is an identifiable asset that will generate expected
future economic benefits; and
(b) determining the cost of the asset reliably. In some cases, the cost of generating an intangible
asset internally cannot be distinguished from the cost of maintaining or enhancing the
entity’s internally generated goodwill or of running day-to-day operations.

52. Therefore, in addition to complying with the general requirements for the recognition and
initial measurement of an intangible asset, an entity applies the requirements and guidance in
paragraphs 52–67 to all internally generated intangible assets.

To assess whether an internally generated intangible asset meets the criteria for recognition, an
entity classifies the generation of the asset into:

(a) a research phase; and

(b) a development phase.

Although the terms ‘research’ and ‘development’ are defined, the terms ‘research phase’ and
‘development phase’ have a broader meaning for the purpose of this Standard.

53. If an entity cannot distinguish the research phase from the development phase of an internal
project to create an intangible asset, the entity treats the expenditure on that project as if it were
incurred in the research phase only.
Research Phase
54. No intangible asset arising from research (or from the research phase of an internal
project) shall be recognised. Expenditure on research (or on the research phase of an
internal project) shall be recognised as an expense when it is incurred.
55. In the research phase of an internal project, an entity cannot demonstrate that an intangible
asset exists that will generate probable future economic benefits. Therefore, this expenditure is
recognised as an expense when it is incurred.

56. Examples of research activities are:

(a) activities aimed at obtaining new knowledge;
(b) the search for, evaluation and final selection of, applications of research findings or other
knowledge;
(c) the search for alternatives for materials, devices, products, processes, systems or services;
and
(d) the formulation, design, evaluation and final selection of possible alternatives for new or
improved materials, devices, products, processes, systems or services.

Development Phase

57. An intangible asset arising from development (or from the development phase of an
internal project) shall be recognised if, and only if, an entity can demonstrate all of the
following:

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(a) the technical feasibility of completing the intangible asset so that it will be available
for use or sale.
(b) its intention to complete the intangible asset and use or sell it.
(c) its ability to use or sell the intangible asset.
(d) how the intangible asset will generate probable future economic benefits. Among
other things, the entity can demonstrate the existence of a market for the output of
the intangible asset or the intangible asset itself or, if it is to be used internally, the
usefulness of the intangible asset.
(e) the availability of adequate technical, financial and other resources to complete the
development and to use or sell the intangible asset.
(f) its ability to measure reliably the expenditure attributable to the intangible asset
during its development.

58. In the development phase of an internal project, an entity can, in some instances, identify an
intangible asset and demonstrate that the asset will generate probable future economic benefits.
This is because the development phase of a project is further advanced than the research phase.

59. Examples of development activities are:

(a) the design, construction and testing of pre-production or pre-use prototypes and models;
(b) the design of tools, jigs, moulds and dies involving new technology;
(c) the design, construction and operation of a pilot plant that is not of a scale economically
feasible for commercial production; and
(d) the design, construction and testing of a chosen alternative for new or improved materials,
devices, products, processes, systems or services.

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Consolidated income statements

SEK M 2008 2009

Net sales Note 7 304,642 218,361
Cost of sales (238,928) (186,167)
Gross income 65,713 32,194

research and development expenses Note 7 (14,348) (13,193)

Selling expenses (27,129) (25,334)
Administrative expenses (6,940) (5,863)
Other operating income and expenses Note 8 (1,539) (4,798)
Income from investments in associated companies Note 7, 9 25 (14)
Income from other investments Note 10 69 (6)
Operating income Note 7 15,851 (17,013)

Interest income and similar credits 1,171 390

Interest expenses and similar charges (1,935) (3,559)
Other financial income and expenses Note 11 (1,077) (392)
Income after financial items 14,010 (20,573)

Income taxes Note 12 (3,994) 5,889

Income for the period 10,016 (14,685)

Attributable to:
Equity holders of the parent company 9,942 (14,718)
Minority interests Note 13 74 33
10,016 (14,685)

Basic earnings per share, SEK Note 23 4.90 (7.26)

Diluted earnings per share, SEK Note 23 4.90 (7.26)

Other comprehensive income

Income for the period 10,016 (14,685)
Exchange differences on translation of foreign
operations 6,149 (1,246)
Exchange differences on hedge instruments of net
investment in foreign operations (414) 159
Accumulated translation difference reversed to income (82) (136)
Available-for-sale investments (459) 86
Cash flow hedges (2,249) 2,313
Other comprehensive income, net of income taxes 2,945 1,176
Total comprehensive income for the period 12,961 (13,509)

Attributable to:
Equity holders of the parent company 12,874 (13,561)
Minority interests 87 52
12,961 (13,509)

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 FINANCIAL INFOrMATION 2009

Consolidated balance sheets

SEK M December 31, 2008 December 31, 2009
Assets
Non-current assets
Intangible assets Note 14 43,958 41,628
Tangible assets Note 14
Property, plant and equipment 56,248 54,289
Investment property 1,022 991
Assets under operating leases 25,429 82,699 20,388 75,668
Financial assets
Associated companies Note 15 652 588
Other shares and participations Note 15 1,301 1,456
Non-current customer-financing receivables Note 16 50,432 39,713
Deferred tax assets Note 12 11,180 12,595
Prepaid pensions Note 24 2,442 2,049
Non-current interest-bearing receivables Note 17 694 585
Other non-current receivables Note 17 3,023 69,724 3,038 60,024
Total non-current assets 196,381 177,320

Current assets
Inventories Note 18 55,045 37,727
Current receivables
Customer-financing receivables Note 19 48,057 42,264
Tax assets 1,810 1,523
Interest-bearing receivables Note 20 1,965 410
Accounts receivable Note 20 30,523 21,337
Other receivables Note 20 15,024 12,082
Non interest-bearing assets held for sale Note 4 – 1,684
Interest-bearing assets held for sale – 97,379 8 79,308
Marketable securities Note 21 5,902 16,676
Cash and cash equivalents Note 22 17,712 21,234
Total current assets 176,038 154,945
Total assets 372,419 332,265

Shareholders’ equity and liabilities

Shareholders’ equity Note 23
Share capital 2,554 2,554
Additional contributed capital – –
reserves 5,078 6,235
retained earnings 66,436 72,334
Income for the period 9,942 (14,718)
Equity attributable to the equity holders of the parent company 84,010 66,405
Minority interests 630 629

Total shareholders’ equity 84,640 67,034

Non-current provisions
Provisions for post-employment benefits Note 24 11,705 8,051
Provisions for deferred taxes Note 12 8,260 3,638
Other provisions Note 25 8,136 28,101 6,360 18,049

Non-current liabilities Note 26

Bond loans 35,798 49,191
Other loans 47,298 56,035
Other liabilities 10,442 93,538 9,888 115,114

Current provisions Note 25 10,883 9,487

Current liabilities Note 27

Loans 62,631 51,626
Non interest-bearing liabilities held for sale Note 4 – 272
Trade payables 51,025 35,955
Tax liabilities 1,204 623
Other liabilities 40,397 155.257 34,105 122,581
Total shareholders’ equity and liabilities 372,419 332,265

Assets pledged Note 28 1,380 958

Contingent liabilities Note 29 9,427 9,607

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Changes in consolidated Shareholders’ equity
Shareholders’ equity attributable to equity holders
of the parent company
Share Other Translation retained Minority Total
SEK M capital reserves1 reserve earnings Total interests equity
Balance at December 31, 2007 2,554 435 1,711 77,502 82,202 579 82,781

Income for the period – – – 9,942 9,942 74 10,016

Other comprehensive income

Translation differences – – 6,126 – 6,126 23 6,149
Translation differences on hedge instruments of net
investments in foreign operations – – (414) – (414) – (414)
Accumulated translation difference reversed to income – – (82) – (82) – (82)
Available-for-sale investments: Note 15, 23
Gains/losses at valuation to fair value – (459) – – (459) – (459)
Change in hedge reserve Note 23 – (2,239) – – (2,239) (10) (2,249)
Other comprehensive income (2,698) (5,630) – 2,932 13 2,945

Total income for the period – (2,698) 5,630 9,942 12,874 87 12,961

Transactions with shareholders

Dividends – – – (11,150) (11,150) (54) (11,204)
Share based payments Note 34 – – – 73 73 – 73
Changes in minority interests – – – – – (62) (62)
Other changes – – – 11 11 80 91
Transactions with shareholders (11,066) (11,066) (36) (11,102)

Balance at December 31, 2008 2,554 (2,263) 7,341 76,378 84,010 630 84,640

Income for the period – – – (14,718) (14,718) 33 (14,685)

Other comprehensive income

Translation differences – – (1,252) – (1,252) 6 (1,246)
Translation differences on hedge instruments of net
investments in foreign operations – – 159 – 159 – 159
Accumulated translation difference reversed to income – – (136) – (136) – (136)
Available-for-sale investments: Note 15, 23
Gains/losses at valuation to fair value – 86 – – 86 – 86
Change in hedge reserve Note 23 – 2,300 – – 2,300 13 2,313
Other comprehensive income for the period – 2,386 (1,229) – 1,157 19 1,176

Total income for the period – 2,386 (1,229) (14,718) (13,561) 52 (13,509)

Transactions with shareholders

Dividends – – – (4,055) (4,055) (15) (4,070)
Share based payments Note 34 – – – 4 4 – 4
Changes in minority interests – – – – – (2) (2)
Other changes – – – 7 7 (36) (29)
Transactions with shareholders (4,044) (4,044) (53) (4,097)

Balance at December 31, 2009 2,554 123 6,112 57,616 66,405 629 67,034

1 For specification of other reserves please see Note 23.

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 FINANCIAL INFOrMATION 2009

Consolidated cash-flow statements

SEK M 2008 2009

Operating activities
Operating income 15,851 (17,013)
Depreciation and amortization Note 14 13,524 15,227
Other items not affecting cash Note 30 (133) 4,397
Changes in working capital:
(Increase)/decrease in receivables 3,209 10,271
(Increase)/decrease in customer finance receivables (10,174) 12,806
(Increase)/decrease in inventories (6,664) 15,225
Increase/(decrease) in liabilities and provisions (9,675) (21,387)
Interest and similar items received 1,100 353
Interest and similar items paid (1,302) (2,905)
Other financial items 109 (514)
Income taxes paid (5,076) (1,604)
Cash-flow from operating activities 769 14,856

Investing activities
Investments in fixed assets (12,664) (10,464)
Investments in leasing assets (5,440) (4,246)
Disposals of fixed assets and leasing assets 2,905 3,849
Shares and participations, net Note 30 (29) (38)
Acquired and divested subsidiaries and other business units, net Note 4, 30 (1,317) 149
Interest-bearing receivables including marketable securities 10,882 (5,663) (8,866) (19,616)
Cash-flow after net investments (4,894) (4,760)

Financing activities
Increase/(decrease) in bond loans and other loans Note 30 18,230 12,655
Cash payment to AB Volvo shareholders’ (11,150) (4,055)
Dividends to minority shareholders (54) (15)
Other 8 7,034 (58) 8,527
Change in cash and cash equivalents,
excluding translation differences 2,140 3,767

Translation difference on cash and cash equivalents 1,028 (245)

Change in cash and cash equivalents 3,168 3,522

Cash and cash equivalents, January 1 Note 22 14,544 17,712

Cash and cash equivalents, December 31 Note 22 17,712 21,234

The effects of major acquisitions and divestments of subsidiaries in excluded since these effects do not affect cash flow. Cash and cash
each year have been excluded from other changes for the balance equivalents include cash and bank balances but also bank certificates
sheet items in the cash-flow statement. The effects of currency move- which matures within 3 months from aquisition.
ments in translation of foreign Group companies have also been

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 FINANCIAL INFOrMATION 2009

Notes to consolidated financial statements

where hedge accounting is not considered to be fulfilled, unrealized Depreciation periods

gains and losses up until the maturity date of the financial instrument Capitalized type-specific tools 2 to 8 years
will be charged to the financial net in the income statement. Operational leases 3 to 5 years
– During 2009 Volvo has applied hedge accounting for certain net
Machinery 5 to 20 years
investments in foreign operations. The current result for such hedges
Buildings and Investment property 25 to 50 years
is reported in a separate component in shareholders’ equity. In the
event of a divestment, the accumulated result from the hedge is rec- Land improvements 20 years
ognized in the income statement. Trademarks 20 years
See notes 36 and 37 for the valuation of all financial instruments in Distribution networks 10 years
the Volvo Group and for details and further description on principles Product and software development 3 to 8 years
for economic hedging, hedge accounting and changes to the policies Aircraft engine projects 20 years
for hedging and hedge accounting during 2009 and going forward.
Non-current assets held for sale and discontinued operations
Research and development expenses Volvo applies IFrS 5, Non-current Assets Held for Sale and Discon-
Volvo applies IAS 38, Intangible Assets, for reporting of research and tinued Operations. In a global group like Volvo, processes are continu-
development expenses. In accordance with this standard, expend- ously ongoing regarding the sale of assets or groups of assets at
itures for development of new products, production systems and soft- minor values. In cases in which the criteria for being classified as a
ware shall be reported as intangible assets if such expenditures with non-current asset held for sale are fulfilled and the asset or group of
a high degree of certainty will result in future financial benefits for the assets is not of minor value, the asset or group of assets and the
company. The acquisition value for such intangible assets shall be related liabilities are reported on a separate line in the balance sheet.
amortized over the estimated useful life of the assets. In order for The asset or group of assets are tested for impairment and, if impaired
these development expenditures to be reported as assets, a number valued at fair value after deduction for selling expenses. The balance
of criteria must be met. For example, it must be possible to prove the sheet items and the income effect resulting from the revaluation to
technical functionality of a new product or software prior to its devel- fair value less costs to sell are normally reported in the segment Group
opment being reported as an asset. In normal cases, this means that headquarter functions and other, until the sale is completed and the
expenditures are capitalized only during the industrialization phase of result from it is assigned to the other segments.
a product development project. Other research and development
expenses are charged to income as incurred. Inventories
Inventories are reported at the lower of cost, in accordance with the
Tangible and intangible non-current assets first-in, first-out method (FIFO), or net realizable value. The acquisition
Volvo applies acquisition values for valuation of intangible and tangi- value is based on the standard cost method, including costs for all
ble assets. Borrowing costs are included in the acquisition value of so direct manufacturing expenses and the apportionable share of the
called qualifying assets from January 1, 2009. capacity and other related manufacturing costs. The standard costs
Investment property is reported at acquisition cost. Information are tested regularly and adjustments are made based on current con-
regarding estimated value of investment property is based on dis- ditions. Costs for research and development, selling, administration
counted cash flow projections. The estimation is performed by the and financial expenses are not included. Net realizable value is calcu-
Group’s real Estate business unit. The required return is based on lated as the selling price less costs attributable to the sale.
current property market conditions for comparable properties in com-
parable locations. Share-based payments
In connection with participation in industrial cooperation projects Volvo applies IFrS 2, Share-based Payments for share-based incen-
together with other companies, such as the aircraft engine projects tive programs. IFrS 2 distinguishes between “cash-settled” and
that Volvo Aero participates in, Volvo pays in certain cases an entrance “equity-settled”, in Volvo’s case, shares. The Volvo program includes
fee to participate. These entrance fees are capitalized as intangible both a cash-settled and an equity-settled part. The value of the
assets. equity-settled payments is determined at the grant-date, recognized
as an expense during the vesting period and credited to equity. The
Depreciation, amortization and impairment fair value is calculated according to share price reduced by dividend
Depreciation is made on a straight-line basis based on the acquisition connected to the share before the allotment. The additional social
value of the assets, adjusted in appropriate cases by write-downs, and costs are reported as a liability, revalued at each balance sheet date
estimated useful lives. Impairment tests for depreciable non-current in accordance with UFr 7, issued by the Swedish Financial reporting
assets are performed if there are indications of impairment at the bal- Board. The cash-settled payment is revalued at each balance sheet
ance sheet date. day and is reported as an expense during the vesting period and as a
Goodwill is reported as an intangible non-current asset with indefin- short term liability. An assessment whether the terms for allotment will
ite useful life. For non-depreciable non-current assets such as good- be fulfilled is made continuously. If the assessment changes, the
will, impairment tests are performed annually, as well as if there are expense will be adjusted. The employee stock option program which
indications of impairments during the year, through calculation of the ended in 2008 was accounted for in accordance with the transition
asset’s recovery value. If the calculated recovery value is less than the principles of IFrS 2, meaning that the equity-settled part was
carrying value, a write-down is made to the asset’s recovery value. See accounted for at fair value at each reporting period and provided for
note 14 for goodwill. as an accrued expense over the vesting period. See note 34.

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Note 14 Intangible and tangible assets

Entrance Product and Other Total

fees, industrial software intangible intangible
Intangible assets, acquisition costs Goodwill programs development assets assets
Value in balance sheet 2008 24,813 3,569 23,290 6,987 58,659
Capital expenditures – 262 2,602 71 2,935
Sales / scrapping – 0 (274) (81) (355)
Acquired and divested operations 41 0 3 (3) 41
Translation differences (1,035) 2 (716) (314) (2,063)
Reclassifications and other 8 0 243 59 310
Value in balance sheet 2009 23,827 3,833 25,148 6,719 59,527

Entrance Product and Other Total

fees, industrial software intangible intangible
Accumulated depreciation and amortization Goodwill programs development assets assets
Value in balance sheet 2008 – 1,699 10,909 2,093 14,701
Capital expenditures – 63 3,126 400 3,589
Sales / scrapping – 0 (260) (66) (326)
Acquired and divested operations – 0 0 0 0
Translation differences – 0 (256) (78) (334)
Reclassifications and other – 0 220 48 269
Value in balance sheet 2009 0 1,762 13,739 2,398 17,899

Net carrying value in balance sheet 2008 24,813 1,870 12,381 4,894 43,958
Net carrying value in balance sheet 2009 23,827 2,071 11,409 4,321 41,628

Volvo Group 2009 Financial Report

This document is authorized for use by William Heninger, from 03/06/2024 to 06/06/2024
in the course: Financial & Managerial Accounting - Heninger (Spring 2024), Brigham Young University.
Any unauthorized use or reproduction of this document is strictly prohibited.
Eleven-year summary

The eleven-year summary presents each year in accordance with Gen- in the business units are transferred back to the product areas. Also, as
eral Accepted Accounting Practice for that year. Earlier years are not from January 1, 2007, the responsibility for the Group’s treasury oper-
restated when new accounting standards are applied. The years 1999– ations and real estate has been transferred from Financial services,
2003 are accounted for in accordance with Swedish GAAP for the which, as from January 1, 2007, only are consolidated in accordance
respective year. As from 2004 the reporting is based on IFrS. The tran- with the purchase method. Comparison figures for 2006 have been
sition to IFrS is described in note 3 in the Annual reports 2005 and recalculated.
2006. As from January 1, 2007, the benefits from the synergies created

Consolidated income statements

SEK M 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Net sales 125,019 130,070 189,280 186,198 183,291 211,076 240,559 258,835 285,405 303,667 218,361
Cost of sales (99,501) (104,548) (155,592) (151,569) (146,879) (164,170) (186,662) (199,054) (219,600) (237,578) (186,167)
Gross income 25,518 25,522 33,688 34,629 36,412 46,906 53,897 59,781 65,805 66,089 32,194

research and
development expenses (4,525) (4,876) (5,391) (5,869) (6,829) (7,614) (7,557) (8,354) (11,059) (14,348) (13,193)
Selling expenses (8,865) (10,140) (15,766) (16,604) (16,866) (19,369) (20,778) (21,213) (26,068) (27,129) (25,334)
Administrative expenses (4,791) (4,974) (6,709) (5,658) (5,467) (5,483) (6,301) (6,551) (7,133) (6,940) (5,863)
Other operating income and
expenses (611) 622 (4,096) (4,152) (1,367) (618) (588) (3,466) 163 (1,915) (4,798)
Income (loss) from investments
in associated companies 567 444 50 182 200 27 (557) 61 430 25 (14)
Income from other investments 170 70 1,410 309 (3,579) 830 37 141 93 69 (6)
Income from divestment
of subsidiaries 26,695 – – – – – – – – – –
restructuring costs – – (3,862) – – – – – – – –
Operating income (loss) 34,158 6,668 (676) 2,837 2,504 14,679 18,153 20,399 22,231 15,851 (17,013)

Interest income and similar credits 1,812 1,588 1,275 1,217 1,096 821 654 666 952 1,171 390
Interest expenses and
similar charges (1,505) (1,845) (2,274) (1,840) (1,888) (1,254) (972) (585) (1,122) (1,935) (3,559)
Other financial income
and expenses 131 (165) (191) (201) (55) (1,210) 181 (181) (504) (1,077) (392)
Income (loss) after
financial items 34,596 6,246 (1,866) 2,013 1,657 13,036 18,016 20,299 21,557 14,010 (20,573)

Income taxes (2,270) (1,510) 326 (590) (1,334) (3,129) (4,908) (3,981) (6,529) (3,994) 5,889
Income (loss) for the period 32,326 4,736 (1,540) 1,423 323 9,907 13,108 16,318 15,028 10,016 (14,685)

Attributable to
Equity holders of the parent
company 32,222 4,709 (1,467) 1,393 298 9,867 13,054 16,268 14,932 9,942 (14,718)
Minority interest 104 27 (73) 30 25 40 54 50 96 74 33
32,326 4,736 (1,540) 1,423 323 9,907 13,108 16,318 15,028 10,016 (14,685)

Consolidated income statements Industrial operations

SEK M 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Net sales 116,382 120,392 180,615 177,080 174,768 202,171 231,191 249,020 276,795 294,932 208,487
Cost of sales (92,772) (97,131) (149,477) (145,453) (141,256) (158,453) (180,823) (192,400) (214,160) (232,247) (179,578)
Gross income 23,610 23,261 31,138 31,627 33,512 43,718 50,368 56,620 62,635 62,685 28,909

research and
development expenses (4,525) (4,876) (5,391) (5,869) (6,829) (7,614) (7,557) (8,354) (11,059) (14,348) (13,193)
Selling expenses (8,117) (9,285) (14,663) (15,393) (15,891) (18,317) (19,616) (19,999) (24,671) (25,597) (23,752)
Administrative expenses (4,632) (4,651) (6,474) (5,464) (5,259) (5,310) (6,147) (6,481) (7,092) (6,921) (5,838)
Other operating income and
expenses (587) 309 (3,071) (2,989) (540) 7 (397) (3,275) 249 (1,457) (2,432)
Income from Financial Services 1,066 1,499 325 490 926 1,365 2,033 – – – –
Income (loss) from investments
in associated companies 478 341 (86) 126 166 2 (568) 61 428 23 (15)
Income from other investments 170 70 1,408 309 (3,581) 828 37 141 93 69 (13)
Income from divestment
of subsidiaries 26,695 – – – – – – – – – –
restructuring costs – – (3,862) – – – – – – – –
Operating income (loss) 34,158 6,668 (676) 2,837 2,504 14,679 18,153 18,713 20,583 14,454 (16,333)

Volvo Group 2009 Financial Report

131

This document is authorized for use by William Heninger, from 03/06/2024 to 06/06/2024
in the course: Financial & Managerial Accounting - Heninger (Spring 2024), Brigham Young University.
Any unauthorized use or reproduction of this document is strictly prohibited.