Accounting policy

Information regarding carrying amounts and fair values
In the table below, carrying amounts are compared with fair values for all of the Volvo Group’s financial instruments.
    Dec 31, 2012   Dec 31, 2011
    Carrying  Fair   Carrying  Fair
SEK M    value value   value value
Assets            
Financial assets at fair value through profit and loss1)       
The Volvo Group's outstanding currency risk derivatives - commercial exposure  Note 16 146 146   107 107
The Volvo Group's outstanding raw materials derivatives Note 16 23 23   68 68
The Volvo Group's outstanding interest and currency risk derivatives - financial exposure Note 16 3,525 3,525   3,215 3,215
Marketable securities  Note 18 3,130 3,130   6,862 6,862
    6,824 6,824   10,252 10,252
             
Loans receivable and other receivables            
Accounts receivable Note 16 27,349   27,699
Customer financing receivables2) Note 15 80,989   78,699
Other interest-bearing receivables Note 16 1,291   564
    109,629   106,962
             
Financial assets available for sale1)            
Holding of shares in listed companies Note 5 347 347   635 635
Holding of shares in non-listed companies Note 5 498   555
    845 347   1,190 635
             
Cash and cash equivalents Note 18 25,759 25,759   30,379 30,379
             
             
Liabilities Note 22          
Financial liabilities at fair value through profit and loss1)    
The Volvo Group's commodity derivatives - commercial exposure   5 5   279 279
The Volvo Group's outstanding raw materials derivatives   84 84   134 134
The Volvo Group's outstanding interest and currency risk derivatives - financial exposure3)   2,827 2,827   4,341 4,323
    2,916 2,916   4,754 4,736
             
             
Financial liabilities valued at amortized cost            
Long term bond loans and other loans   79,592 85,060   84,286 90,174
Short term bank loans and other loans   50,274 49,455   43,159 41,884
    129,866 134,515   127,445 132,058
             
Trade Payables   47,364   56,788

1) IFRS 7 classifies financial instruments based on the degree that market values have been utilized when measuring fair value. All financial instruments measured at fair value held by Volvo are classified as level 2 with the exception of shares and participations, which are classified as level 1 for listed instruments and level 3 for unlisted instruments. Refer to Note 5 for more information regarding valuation principles. None of these individual shareholdings is of significant value for Volvo.
2) Volvo does not estimate the risk premium for the customer financing receivables and chooses therefore not to disclose fair value for this category.
3) Includes a fair value of a loan related to hedge accounting neg 1,495 (neg 1,285), netted against the derivative used to hedge the risk pos 1,477 (1,267). For further information on hedging of currency and interest rate risks on loans see below.

Derecognition of financial assets
Volvo Group is involved in cash enhancement activities such as factoring and discounting. Financial assets that have been transferred are included in full or in part in the reported assets of the Volvo Group dependent on the risk and rewards related to the asset have been transferred to the recipient. In accordance with IAS 39, Financial Instruments, Recognition and Measurement, an evaluation is performed to establish whether, substantially, all the risks and rewards have been transferred to an external party. Where the Volvo Group concludes this is not the case, the portion of the financial assets corresponding to the Volvo Group’s continuous involvement is recognized. When all the risk and rewards are not considered to be transferred the amount is kept on the balance sheet. Transferred financial asset that does not fulfill the requirements for derecognition amount to SEK 0.3 billion (0.6).

Transferred financial assets for which substantially all risks and rewards have been transferred are derecognized. Continuing involvements in these assets are reflected in the Volvo Group’s balance sheet. External credit guarantees relating to these financial assets are recognized to fair value as provisions in the balance sheet and amount to 118.

Volvo Group’s maximum exposure to loss is considered being the total recourse relating to the transferred assets, i.e. the total amount Volvo Group would have to pay in case of default of the customers. This risk exposure is considered not to be material for the Volvo Group as it does not exceed SEK 0.3 billion. This is the total exposure for the Volvo Group but the likelihood for all customers being in default at the same time is considered to be immaterial.

See note 24 Contingent Liabilities for information regarding contingent liabilities for credit guarantees.

Gains, losses, interest income and expenses related to financial instruments
The table below shows how gains and losses as well as interest income and expenses have affected income after financial items in the Volvo Group divided on the different categories of financial instruments.

Reported in operating income1) 2012   2011
SEK M Gains/losses Interest income Interest expenses   Gains/losses Interest income Interest expenses
Financial assets and liabilities at fair value through profit and loss2)              
Currency risk contracts-commercial exposure3) 272   (91)
Loans receivable and other receivables              
Accounts receivables / trade payables (125)   65
Customer financing receivables VFS 23 5,037   68 4,862
Financial assets available for sale              
Shares and participations for which a market value can be calculated 15   20
Shares and participations for which a market value cannot be calculated 27   25
Financial liabilities valued at amortized cost 4) (2,373)   (2,456)
Effect on operating income 212 5,037 (2,373)   87 4,862 (2,456)
               
Reported in net financial items5)              
Financial assets and liabilities at fair value through profit and loss              
Marketable securities 154   224
Interest and currency rate risk contracts- financial exposure 6) 294   (409)
Loans receivable and other receivables 3   3
Cash and Cash equivalents 390   545
Financial liabilities valued at amortized cost6) (227) (2,464)   771 (2,642)
Effect on net financial items 221 393 (2,464)   586 548 (2,642)

1) Information is provided regarding changes in provisions for doubtful receivables and customer financing in Notes 15 and 16, Accounts receivable and customer financing receivables, as well as in Note 8, Other financial  income and expenses.
2) Accrued and realized interest is included in gains and losses related to Financial assets and liabilities at fair value through profit and loss.
3) Volvo uses forward contracts and currency options to hedge the value of future payment flows in foreign currency. Both unrealized and realized result on currency risk contracts are included in the table. Refer to Note 4, Goals and policies in financial risk management.
4) Interest expenses attributable to financial liabilities valued at amortized cost recognized in operating income include interest expenses for financing operational leasing activities, not classified as financial instruments.
5) In gains, losses, income and expenses related to financial instruments recognized in Net financial items, neg 1 (569) was recognized under other financial income and expenses. Refer to Note 9, Other financial income and expenses for further information. Interest expenses attributable to pensions, 117 (191) are not included in this table.
6) Gains and losses related to changes in foreign currency rates on currency rate risk contracts for financial exposure is 218 (neg 746) and neg 227 (771) for financial liabilities valued at amortized cost. Refer to Note 9, Other financial income and expenses for further information.

Below is a presentation of derivative instruments and options of financial and commercial receivables and liabilities.
Outstanding derivative instruments for dealing with currency and interest-rate risks related to financial assets and liabilities Dec 31, 2012   Dec 31, 2011
  Notional Carrying   Notional Carrying
 SEK M amount value   amount value
Interest-rate swaps          
  – receivable position 64,825 2,507   76,383 2,757
  – payable position 74,247 (1,169)   68,046 (2,183)
Forwards and futures          
  – receivable position 10   7,155
  – payable position 7,470 (34)   6,908
Foreign exchange derivative contracts          
  – receivable position 21,743 1,003   18,520 227
  – payable position 19,224 (127)   33,005 (642)
Options purchased          
  – receivable position 367 5   991 231
  – payable position 74   104
Options written          
  – receivable position   89
  – payable position 130 (2)   978 (231)
Total   2,193     159
Outstanding forward contracts and options contracts for hedging of currency risk and interest risk of commercial receivables and liabilities Dec 31, 2012   Dec 31, 2011
  Notional Carrying   Notional Carrying
 SEK M amount value   amount value
Foreign exchange derivative contracts          
  – receivable position 3,682 141   2,444 54
  – payable position 303 (4)   5,145 (200)
Options purchased          
  – receivable position 352 5   3,521 53
  – payable position  
Options written          
  – receivable position  
  – payable position 352 (1)   3,532 (79)
Subtotal   141     (172)
           
Raw materials derivative contracts          
  – receivable position (120) 23   (227) 68
  – payable position 467 (84)   693 (134)
Total   80     (238)

Hedge accounting supplementary information

Hedging of forecast electricity consumption
In 2012, the Volvo Group recognized neg 1 (4) related to the ineffectiveness of the hedging of forecasted electricity.

Hedging of currency and interest rate risks on loans
Fair value of the hedge instruments outstanding amounts to 1,697 (1,484). Changes in fair value of the loan related to hedge accounting amounts to negative 1,495 (neg 1,285). The changes in the fair value of the hedge instruments outstanding and the changes in the fair value of the loan are recognized in net financial positions in profit and loss.

Hedging of net investments in foreign operations
A total of neg 205 (neg 205) was recognized in other comprehensive income relating to hedging of net investments in foreign operations as of December 31, 2012. The loans used as hedging instruments expired during 2011.