Chrysler 2005 Annual Report Download - page 166

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Appendix 1 Transition to International Financial Reporting Standards (IFRS)
shares in Italenergia to ED F in 2005, based on market values at that
date, but subject to a contractually agreed minimum price in excess
of book value.
Under Italian GAAP, Fiat 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 O ctober 1,
2002; in addition it recorded a gain of 189 million 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 was 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 was reversed, and
the results of applying the equity method of accounting to the
investment in Italenergia was 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.
This adjustment decreased the stockholders’ equity at January 1,
2004 and at December 31, 2004 by an amount of 153 million euros
and 237 million euros, respectively. Furthermore this adjustment
increased the investment for an amount of 291 million euros at
January 1, 2004 and of 341 million euros at D ecember 31, 2004 and
financial debt for amounts of 572 million euros at January 1, 2004
and of 593 million euros at D ecember 31, 2004, as a consequence of
the non-recognition of the transfer of the 14% interest in Italenergia.
F. Scope of consolidation
Under Italian GAAP, the subsidiary B.U.C. – Banca Unione di Credito,
as required by law,was excluded from the scope of consolidation as it
had dissimilar activities, and was accounted for using the equity method.
IFRS does not permit this kind of exclusion:consequently, B.U.C. is
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 were 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 has been applied to all receivables securitisation
transactions entered into by the Group (see the paragraph Q . Sales
of receivables below), to a real estate securitisation transaction
entered into in 1998 and to the sale of the Fiat Auto Spare Parts
business to “Società di Commercializzazione e D istribuzione Ricambi
S.p.A.” (“SCD R”) in 2001.
In particular, in 1998 the Group entered in a real estate
securitisation and, under Italian GAAP, the related revenue was
recognised at the date of the legal transfer of the assets involved.
In the IFRS balance sheet at January 1, 2004, these assets have been
written back at their historical cost, net of revaluations accounted
before the sale, if any. Cash received at the time of the transaction
has been accounted for in financial debt for an amount of 188 million
euros at January 1, 2004.
The IFRS stockholders’ equity at January 1, 2004 was negatively
impacted for 105 million euros by the cumulative effect of the
reversal of the capital gain on the initial disposal and of the
revaluation previously recognised under Italian GAAP, net of the
related effect of 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 the 2004 net result is not 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.”
(“SCD R”), 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 of 300 million euros.The Group’s investment
in SCD R represents 19% of SCD R’s stock capital and was accounted
for under the equity method for Italian GAAP.
Under IFRS, SCD R qualifies as a Special Purpose Entity (SPE) as
defined by SIC 12 due to the continuing involvement of Fiat Auto in
SCDR operations. Consequently, SCDR has been consolidated on a
line by line basis in the IFRS consolidated financial statements, with a
consequent increase in financial debt of 237 million euros and of 471
million euros at January 1, 2004 and at D ecember 31, 2004,
respectively. O pening stockholders’ equity at January 1, 2004 was