Note 2 Accounting principles

General

The Parent Company Vattenfall AB’s accounts are prepared in accordance with the Swedish Annual Accounts Act and recommendation RFR 2.1 - Accounting for Legal Entities, issued by the Swedish Financial Reporting Board (RFR). RFR 2.1 entails that Vattenfall AB shall apply all standards and interpretations issued by IASB and IFRIC as endorsed by the European Commission for application within the EU. This should be done as far as this is possible within the framework of the Swedish Annual Accounts Act by taking into consideration the relationship between accounting and taxation. Vattenfall AB has adopted the exemption rule regarding IAS 39 according to RFR 2.1, which entails that financial instruments are reported at cost.

Accounting principles and methods of calculations are unchanged from those applied in the 2007 Annual Accounts.

New and amended accounting standards effective as of 2009 are expected to have no or minimal impact on Vattenfall AB’s financial statements.

The accounting principles applied are stated in the applicable parts of Note 2 to the consolidated accounts with the following amendments for the Parent Company Vattenfall AB.

Depreciation and amortisation

As in the consolidated accounts, depreciation and amortisation are based on cost and are applied on a straight-line basis over the estimated useful life of the asset in question. In addition, certain accelerated depreciation/amortisation (the difference between depreciation/amortisation according to plan and depreciation/amortisation for tax purposes) in the Parent Company is reported under Appropriations and Untaxed reserves, respectively.

Pension provisions

Pension obligations in the Parent Company are calculated in accordance with generally accepted Swedish actuarial principles and are recognised according to the Act on Safeguarding of Pension Obligations ("Tryggandelagen"). The provision reported in the balance sheet corresponds to these pension obligations, recognised net against plan assets of Vattenfall’s Pension Foundation.

Income taxes

Tax legislation in Sweden allows companies to defer tax payments by making provisions to untaxed reserves. In the Parent Company, untaxed reserves are reported as a separate item in the balance sheet that includes deferred tax. In the Parent Company’s income statement, provisions to untaxed reserves and dissolution of untaxed reserves are reported under the heading Appropriations.

The recognised income tax expense of the Parent Company, Vattenfall AB, consists of income tax on profit after appropriations.