Chrysler 2004 Annual Report Download - page 176

FIAT S.P.A.
03
174
and the relative exchange losses and gains are posted to the
statement of operations.
Any net income is set aside for the portion not used to cover
the loss for the year, if any, in a special reserve that cannot be
distributed until cash is available.
Accruals and deferrals
Accruals and deferrals are determined by the accrual method, in
accordance with the general principle of assigning revenues and
expenses to the accounting period in which they are earned or
incurred.
Reserves for risks and charges
Reserves for risks and charges are established to cover costs or
liabilities that have already been incurred or the occurrence of
which was probable or definite at the end of the fiscal year, but
were undetermined either as to amount or time of probable
occurrence.
Reserve for employee severance indemnities
The reserve for employee severance indemnities represents the
actual liability toward employees accrued as of the end of the
fiscal year and is adjusted each year in accordance with current
laws and collective bargaining agreements.
■ MEMORANDUM ACCOUNTS
Suretyships and other unsecured guarantees
The suretyships and other unsecured guarantees granted on
behalf of subsidiaries and others are posted under
memorandum accounts.
The suretyships granted against payment of the leases of
subsidiaries are posted in the amount of the provided
guarantee; the suretyships for the Sava Notes are posted in
the amount of the outstanding notes; the suretyships and other
unsecured guarantees granted for financing, bonds, credit
facilities, and commercial paper of subsidiaries and others
are posted for the value of these notes at December 31.
The Other unsecured guarantees include the amount of
the risk of withdrawal on sales of receivables with recourse.
The receivables sold with recourse are eliminated from
the balance sheet; the risk of withdrawal is reported under
memorandum accounts and described in the notes to
the financial statements.
The suretyships granted by others for enterprise debts, in
particular those granted by the Consortia participating in the
High-Speed Railway Project to guarantee the successful
conclusion of work and the advances posted on the liability side
of the balance sheet under “Advances,” are not reported under
memorandum accounts but described instead in the notes to
the financial statements.
Commitments
The Group’s commitments are posted under memorandum
accounts in their amount at December 31. In particular, the
supply commitments for the High-Speed Railway Project include
the amount of supply commitments envisaged in the original
agreements made with Treno Alta Velocità - T.A.V. S.p.A.,
the amounts envisaged in agreements for alterations during
construction, and relative monetary adjustments.
If the amount of a commitment cannot be quantified, the
commitment is not posted under memorandum accounts but
described instead in the notes to the financial statements.
Derivative financial instruments
Derivative financial instruments are recorded at inception in
the memorandum accounts at their notional contract amount.
More specifically, derivative financial instruments classified
as trading instruments insofar as they do not satisfy the
requirements for hedge accounting treatment, are valued at
their market value and the differential, if negative compared
to the contractual value, is recorded in the statement of
operations, in Financial income and expenses in accordance
with the principle of prudence. In contrast, for instruments that
can be classified as hedging, the effects of the transaction are
posted on the statement of operations in such a way as to offset
the effects of the hedged flows.
■ STATEMENT OF OPERATIONS
Dividends
Dividends are recorded in the year when declared by the
disbursing companies.
Financial income and expenses
Financial income and expenses are recorded on the accrual basis.
Costs relating to the sale of receivables of any type (with and
without recourse) and nature (trade, financial, other) are charged
to the statement of operations on an accrual basis.
Income taxes
Liability for corporate income taxes due for the fiscal year
is determined in accordance with the current legislation.
Deferred tax assets and liabilities are determined on the basis of
the temporary differences that arise between asset and liability
items and the corresponding tax items.
In particular, deferred tax assets are recognized only when it is
reasonably certain that they will be recovered. Conversely,
deferred tax liabilities are not recognized if it is unlikely that the
corresponding obligations will in fact arise.
For a three-year period starting in 2004, Fiat S.p.A. and almost
all of its Italian subsidiaries have decided to participate in the
national tax consolidation program envisaged in Articles 117
and 129 of the Consolidated Law on Income Tax (T.U.I.R.).
Fiat S.p.A. functions as a consolidating company and
determines a single taxable base for the group of companies
participating in the tax consolidation program, which thus
benefits from the possibility of setting off taxable income with
tax losses on a single tax return.
Each company participating in the tax consolidation contributes
its taxable income or loss to the consolidated tax return; Fiat
S.p.A. posts a credit in its favor for the IRES (corporate income
tax) to be paid. In contrast, for those companies that contribute
tax losses, Fiat S.p.A. posts a payable equal to the IRES on the
portion of the loss that is actually set off at the group level.