Chrysler 2004 Annual Report Download - page 175

NOTES TO THE FINANCIAL STATEMENTS
173
Financial Statements at December 31, 2004 – Notes to the Financial Statements
ACCOUNTING PRINCIPLES AND METHODS
The financial statements at December 31, 2004, which include
the balance sheet, the statement of operations and the notes to
the financial statements, have been prepared in accordance with
the format and regulations set forth in Legislative Decree No.
127 of April 9, 1991, and in compliance with the new provisions
of the Italian Civil Code enacted by the Legislative Decree No.
6 of January 17, 2003 (Reform for the system of governance of
listed companies and cooperatives). Accordingly, certain items
on the balance sheet and statement of operations for the
previous year have been reclassified using the terms introduced
by the new legislation.
The Statutory Financial Statements also provide the additional
information required by CONSOB.
The valuation criteria used, which are discussed below, are
consistent with those used in previous fiscal years, where not
amended by the new provisions of the Italian Civil Code, and
comply with the provisions of Article 2426 of the Italian Civil
Code. In particular, the adoption of new statutory provisions
governing valuation criteria did not impact determination of
the loss for the year and comparison with the loss reported
for the previous year.
In particular:
■BALANCE SHEET
Intangible fixed assets
Start-up and expansion costs consist of costs incurred in
connection with capital increases. They are capitalized on
the basis of their estimated useful life. They are amortized
on a straight-line basis over five years.
Trademarks are recorded at a value that reflects only the
administrative cost of registration. To ensure a conservative
valuation, this amount is amortized on a straight-line basis over
three years.
The other intangible fixed assets are represented by the
commissions paid for organization of the convertible facility
granted in 2002. They are amortized on a pro-rated basis
according to the term of the facility.
Property, plant and equipment and depreciation
Property, plant and equipment is recorded at acquisition cost
plus directly attributable charges. As indicated in a separate
schedule, the value of some of these assets includes the inflation
adjustments required under the pertinent laws. Improvement
costs are added to the value of the asset in question only when
they permanently increase their value. Depreciation is computed
on a straight-line basis at rates deemed adequate in view of the
estimated useful life of the assets. For assets acquired during the
fiscal year, the annual depreciation is taken at half the regular
rate. The cost of maintenance and repairs is charged directly to
income when incurred.
Financial fixed assets
Financial fixed assets include equity investments and other
securities.
Equity investments are stated in the balance sheet at their
historical cost and, more exactly, on the basis of the costs
incurred or, when business operations are transferred, at the
values set forth in the respective contracts in accordance with
the appraisals required by law, determined by the LIFO method
with annual adjustments. As shown in a separate schedule,
some of these assets have been adjusted for inflation, as
required by the relevant legislation.
Investments in companies for which other than temporary
impairment occurred are written down accordingly.
If in subsequent fiscal years the reasons for these adjustments
are no longer valid, the writedowns are reversed. No reversals
are made for writedowns recognized prior to the effective date
of Decree Law No. 127/1991.
Other securities include securities shown at their net purchase
price, adjusted for the accrual of any premium or discount
earned or incurred upon issuance or purchase, because the
securities, which are pledged to fund scholarship grants, are
not held for trading purposes.
Inventories
Inventories include contract work in progress and advances
to suppliers.
Work in progress relates to long-term contracts (i.e. contracts
signed between Fiat and Treno Alta Velocità - T.A.V. S.p.A. in
connection with the High-Speed Railway Project, described in
Note 4) and is valued on the basis of the respective production
cost.
Amounts received from the bidder company T.A.V. S.p.A. while
work is in progress are treated as a form of financing and are
included among the liabilities under advances, while those paid
to the subcontracting consortia are booked under inventories -
advances to suppliers.
Revenues are booked when the work is actually delivered and
accepted by customers.
Treasury stock
Treasury stock is valued at the lower of its purchase cost
(calculated using the LIFO method in annual installments) and
its market value or the stock option exercise price when it is
used to cover it.
A corresponding treasury stock reserve for the same amount has
been recorded in the balance sheet under stockholders’ equity.
This reserve cannot be used to cover losses.
Receivables and payables
Accounts receivable are shown at their estimated realizable
value, which represents the difference between their face value
and the adjustments included in the allowance for doubtful
accounts. The individual items are shown in the balance sheet
net of the respective allowances.
Based on past experience, the amount of these allowances is
determined in accordance with a prudent estimate of
uncollectible amounts and reflects the risks associated with
specific delinquent accounts.
The receivables and payables denominated in the currencies of
countries not belonging to the EMU are expressed in euros at
the spot exchange rate on the closing date of the fiscal year,