Volvo Group Background:

Concepts:

a. The 2009 income statement shows research and development (R&D) 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 products and software development costs are amortized over 3-8 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 the 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 closing