Chrysler 2005 Annual Report Download - page 88

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Fiat Group Consolidated Financial Statements at December 31, 2005 - N otes to the Consolidated Financial Statements
Payment, these plans represent a component of recipient
remuneration.The compensation expense, corresponding to the fair
value of the options at the grant date, is recognised in the income
statement on a straight-line basis over the period from the grant
date to the vesting date, with the offsetting credit recognised directly
in equity.Any subsequent changes to fair value do not have any effect
on the initial measurement. In accordance with the transitional
provisions of IFRS 2, the Group applied the Standard to all stock
options granted after N ovember 7, 2002 and not yet vested at
January 1, 2005, the effective date of the Standard. Detailed
information is provided in respect of all stock options granted on or
prior to N ovember 7, 2002.
Provisions
The Group records provisions when it has an obligation, legal or
constructive, to a third party, when it is probable that an outflow of
Group resources will be required to satisfy the obligation and when
a reliable estimate of the amount can be made.
Changes in estimates are reflected in the income statement in the
period in which the change occurs.
Treasury shares
Treasury shares are presented as a deduction from equity.The
original cost of treasury shares and the proceeds of any subsequent
sale are presented as movements in equity.
Revenue recognition
Revenue is recognised if it is probable that the economic benefits
associated with the transaction will flow to the Group and the
revenue can be measured reliably. Revenues are stated net of
discounts, allowances, settlement discounts and rebates.
Revenues from the sale of products are recognised when the risks
and rewards of ownership of the goods are transferred to the
customer, the sales price is agreed or determinable and receipt of
payment can be assumed:this corresponds generally to the date
when the vehicles are made available to non-group dealers, or the
delivery date in the case of direct sales. N ew vehicle sales with a
buy-back commitment are not recognised at the time of delivery but
are accounted for as operating leases when it is probable that the
vehicle will be bought back. More specifically, vehicles sold with a buy-
back commitment are accounted for as assets in Inventory if the sale
originates from the Fiat Auto business (agreements with normally a
short-term buy-back commitment); and are accounted for as fixed
assets in Property, plant and equipment, if the sale originates from
the Commercial Vehicles business (agreements with normally a long-
term buy-back commitment).The difference between the carrying
value (corresponding to the manufacturing cost) and the estimated
resale value (net of refurbishing costs) at the end of the buy-back
period, is depreciated on a straight-line basis over the same period.
The initial sale price received is recognised as an advance payment
(liability).The difference between the initial sale price and the buy-
back price is recognised as rental revenue on a straight-line basis
over the term of the operating lease.
Revenues from services and from construction contracts are
recognised by reference to the stage of completion (the percentage
of completion method).
Revenues also include lease rentals and interest income from financial
services companies.
Cost of sales
Cost of sales comprises the cost of manufacturing products and the
acquisition cost of purchased merchandise which has been sold. It
includes all directly attributable material and production costs and all
production overheads.These include the depreciation of property,
plant and equipment and the amortisation of intangible assets relating
to production and write-downs of inventories. Cost of sales also
includes freight and insurance costs relating to deliveries to dealers
and agency fees in the case of direct sales, as well as costs for sales
incentive programs, determined on the basis of historical costs,
country by country, and charged against profit for the period in
which the corresponding sales are recognised.The Group’s incentive
programs include the granting of retail financing at significant discount
to market interest rates.The corresponding cost is recognised at the
time of the initial sale.
Cost of sales also include provisions made to cover the estimated
cost of product warranties at the time of sale to dealer networks or
to the end customer. Revenues from the sale of extended warranties
and maintenance contracts are recognised over the period during
which the service is provided.