Chrysler 2005 Annual Report Download - page 217

216 Fiat S.p.A. Financial Statements at December 31, 2005 - N otes to the Financial Statements
03 Fiat S.p.A.
N otes to the Financial Statements
ACCO UN TIN G PRIN CIPLES AN D METHO DS
The statutory financial statements at D ecember 31, 2005, which
include the Balance Sheet, the Income Statement and the N otes
to the financial statements, have been prepared in compliance with
the provisions of the Italian Civil Code and provide the additional
information required by CO N SO B.
As envisaged in Legislative D ecree N o. 127/1991 the Group has
prepared consolidated financial statements.
The valuation criteria used, which are illustrated below, are consistent
with those used in the past fiscal year and comply with the provisions
of Article 2426 of the Italian Civil Code.
In particular:
Balance Sheet
Intangible fixed assets
Start-up and expansion costs consist of costs incurred in connection
with capital increases.They are capitalised on the basis of their estimated
useful life.They are amortised on a straight-line basis over five years.
Trademarks are recorded at a value that reflects only the costs
incurred for their realisation and the administrative procedure for
their registration.To ensure a conservative valuation, this amount
is amortised on a straight-line basis over three years.
The other intangible fixed assets are represented by costs expected
to benefit future periods and are amortised systematically over the
period to be benefited.
Property, plant and equipment
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 assets in question only when they permanently
increase their value or useful life. 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 pertinent laws.
Equity investments in companies that show a permanent impairment
in value are written down accordingly.
If in subsequent fiscal years the reasons for these adjustments are
no longer valid, the writedowns are reversed. N o reversals are made
for writedowns recognised prior to the effective date of Legislative
Decree N o. 127/1991.
O ther 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.
W ork in progress relates to long-term contracts (contracts signed
between Fiat and Treno Alta Velocità – T.A.V. S.p.A. in connection with
the High-Speed Railway Project, described in N ote 4) and is valued
on the basis of the respective production cost.
Amounts received from the client 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 instalments) and its market value, or