Chrysler 2005 Annual Report Download - page 89

88 Fiat Group Consolidated Financial Statements at December 31, 2005 - N otes to the Consolidated Financial Statements
02 Fiat Group
Expenses which are directly attributable to the financial services
businesses, including the interest expense related to the financing
of financial services businesses as a whole and charges for risk
provisions and write-downs, are reported in cost of sales.
Research and development costs
This item includes research costs, development costs not eligible for
capitalisation and the amortisation of development costs recognised
as assets in accordance with IAS 38 (see N otes 4 and 13).
Taxes
Income taxes include all taxes based upon the taxable profits of the
Group.Taxes on income are recognised in the income statement
except to the extent that they relate to items directly charged or
credited to equity, in which case the related income tax effect is
recognized in equity. Provisions for income taxes that could arise on
the distribution of a subsidiary’s undistributed profits are only made
where there is a current intention to distribute such profits. O ther
taxes not based on income, such as property taxes and capital taxes,
are included in operating expenses. D eferred taxes are provided
using the full liability method.They are calculated on all temporary
differences between the tax base of an asset or liability and the
carrying values in the consolidated financial statements, except for
those arising from non tax-deductible goodwill and for those related
to investments in subsidiaries where their reversal will not take place
in the foreseeable future. Deferred tax assets relating to the carry-
forward of unused tax losses and tax credits, as well as those arising
from temporary differences, are recognised to the extent that it is
probable that future profits will be available against which they can
be utilised. Current and deferred income tax assets and liabilities are
offset when the income taxes are levied by the same taxation
authority and where there is a legally enforceable right of offset.
Deferred tax assets and liabilities are measured at the enacted tax
rates in the respective jurisdictions in which the Group operates that
are expected to apply to taxable income in the periods in which
temporary differences will be reversed.
Dividends
Dividends payable are reported as a movement in equity in the
period in which they are approved by stockholders.
Earnings per share
Basic earnings per share are calculated by dividing the Group’s net
profit by the weighted average number of shares outstanding during
the year, excluding treasury shares. For diluted earnings per share, the
weighted average number of shares outstanding is adjusted assuming
conversion of all dilutive potential shares. Group net result is also
adjusted to reflect the net after-tax impact of conversion.
Use of estimates
The preparation of financial statements and related disclosures that
conform to IFRS requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements.Actual results could differ from those
estimates. Estimates are used in many areas, including accounting for
bad debt provisions on accounts receivable, inventory obsolescence,
depreciation, asset impairment, employee benefits, taxes, restructuring
reserves, provisions and contingencies. Estimates and assumptions are
reviewed periodically and the effects of any changes are reflected
immediately in the income statement.
N ew accounting standards
There are no revised or new standards or interpretations that
became effective on January 1, 2005 that had a significant effect on
the Group’s financial statements.
In D ecember 2004, the IASB issued an amendment to IAS 19 -
Employee Benefits providing entities with the option of recognising
actuarial gains and losses in full in the period in which they occur,
outside the income statement, in a statement of recognised income
and expense.The amendment also provides guidance on allocating
the cost of a group defined benefit plan to the entities in the Group.
The amendment is effective for annual periods beginning on or after
January 1, 2006.The Group is currently evaluating the impact
of this amendment.
In April 2005, the IASB issued an amendment to IAS 39 - Financial
Instruments: Recognition and M easurement to permit the foreign
currency risk of a highly probable intragroup forecast transaction
to qualify as the hedged item in a cash flow hedge in consolidated
financial statements - provided that the transaction is denominated in