Chrysler 2004 Annual Report Download - page 48

REPORT ON
OPERATIONS
01
46
certain circumstances) and the assignment to Fiat of a put
option to sell its shares in Italenergia to EDF in 2005, based on
market values at that date, but subject to a contractually agreed
minimum price which is in excess of book value.
Under Italian GAAP, Fiat has accounted for its investments
in Italenergia under the equity method, based on a 38.6%
shareholding through September 30, 2002 and a 24.6%
shareholding from October 1, 2002; in addition it recorded
a gain of 0.2 billion euros before taxes on the sale of its 14%
interest in the investee to other shareholders effective
September 30, 2002.
Under IFRS, the transfer of the 14% interest in Italenergia to the
other shareholders is not considered to meet the requirements
for revenue recognition set out in IAS 18, mainly due to the
existence of the put options granted to the transferees and
de facto constraints on the transferees’ ability to pledge or
exchange the transferred assets in the period from the sale
through 2005. Accordingly, the gain recorded in 2002 for the
sale under Italian GAAP will be reversed, and the results of
applying the equity method of accounting to the investment in
Italenergia will be recomputed to reflect a 38.6% interest in the
net results and stockholders’ equity of the investee, as adjusted
for the differences between Italian GAAP and IFRS applicable
to Italenergia.
F. S COPE OF CONSOLIDATION
Under Italian GAAP, the subsidiary BUC – Banca Unione
di Credito, as requested by law, has been excluded from the
scope of consolidation as it has non-homogeneous operations
and is accounted for using the equity method.
IFRS do not allow this kind of exclusion: consequently, BUC
will be included in the IFRS scope of consolidation.
Furthermore, under Italian GAAP investments that are not
controlled on a legal basis or a de facto basis determined
considering voting rights are excluded from the scope of
consolidation.
Under IFRS, in accordance with SIC 12 – Consolidation – Special
Purpose Entities, a Special Purpose Entity (“SPE”) shall be
consolidated when the substance of the relationship between
an entity and the SPE indicates that the SPE is controlled by that
entity.
This standard applies to all receivables securitization
transactions entered by the Group (see beyond paragraph
“Sales of receivables”), as well as to a real estate securitization
transaction entered in 1998 and to the sale of Fiat Auto Spare
Parts business to “Società di Commercializzazione e
Distribuzione Ricambi S.p.A” (“SCDR”) in 2001.
In particular, in 1998 the Group entered in a real estate
securitization and, under Italian GAAP, the related revenue
was recognized at the date of the legal transfer of the assets
involved. In the IFRS balance sheet at January 1, 2004 these
assets will be written back at their historical cost, net of
revaluation accounted before the sale time, if any. Cash received
at the time of transaction will be accounted for against financial
debt.
The IFRS stockholders’ equity at January 1, 2004 will be
negatively impacted by the cumulative effect of the reversal
of capital gain on the initial disposal and of the revaluation
previously recognized under Italian GAAP, net of related effect
on asset depreciation, as well as the recognition of financial
charges on related debt, net of the reversal of rental fees paid,
if any. The impact on 2004 net result is not expected to be
material.
Furthermore, in 2001 the Group participated with a specialist
logistics operator and other financial investors in the formation
of “Società di Commercializzazione e Distribuzione Ricambi
S.p.A” (“SCDR”), a company whose principal activity is the
purchase of spare parts from Fiat Auto for resale to end
customers. At that date Fiat Auto and its subsidiaries sold their
spare parts inventory to SCDR recording a gain. The Group’s
investment in SCDR represents 19% of SCDR’s stock capital
and is accounted for under the equity method for Italian GAAP.
Under IFRS, SCDR qualifies as a Special Purposes Entity (SPE)
as defined by SIC 12 due to the continuing involvement of Fiat
Auto in SCDR operations. Consequently, SCDR will be
consolidated on a line by line basis in IFRS financial statements,
with a negative impact on financial debt. Opening stockholders’
equity at January 1, 2004 will be reduced by the amount
corresponding to the holding gain on inventory held by SCDR
on that date.
G. PROPERTY, PLANT AND EQUIPMENT
Under Italian GAAP and IFRS, assets included in Property, Plant
and Equipment are usually recorded at cost, corresponding to
the purchase price plus direct attributable cost of bringing the
assets up to working condition.
Under Italian GAAP, Fiat revalued certain Property, Plant and
Equipment to amounts in excess of historical cost, as permitted
or required by specific laws of the countries in which the assets
were located. These revaluations were credited to stockholders’
equity and the revalued assets were depreciated over their
remaining useful lives.
Furthermore, under Italian GAAP, the land directly related
to buildings included in Property, Plant and Equipment is
depreciated together with the related building depreciation.
The revaluations and land depreciation purely are not allowed
under IFRS. Therefore IFRS stockholders’ equity at January 1,
2004 will reflect a negative impact, related to the effect of the