Chrysler 2006 Annual Report Download - page 125

Fiat S.p.A. Financial Statements at December 31, 2006 - Notes to the Financial Statements 247Fiat S.p.A. Financial Statements at December 31, 2006 - Notes to the Financial Statements246
Other non-current assets, Trade receivables, Current financial
receivables and Other current receivables,excluding assets
deriving from derivative financial instruments and all financial
assets for which quotations on an active market are not available
and whose fair value cannot be reliably determined are measured
at amortised cost using the effective interest method if they have
apre-determined maturity. If financial assets do not have a pre-
determined maturity they are measured at cost. Receivables with
adue date beyond one year that are non-interest bearing or on
which interest accrues at below market rate are discounted to
present value using market rates.
Valuations are performed on a regular basis with the purpose of
verifying if there is objective evidence that a financial asset, taken
on its own or within a group of assets, may have been impaired.
If objective evidence exists, the impairment loss is recognised as
acost in the Income Statement for the period.
Non-current financial payables, Other non-current liabilities,
Trade payables, Current financial payables and Other payables
are measured on initial recognition at fair value (normally
represented by the cost of the transaction), including any
transaction costs.
Financial liabilities are subsequently measured at amortised cost
using the effective interest method, except for derivative financial
instruments and liabilities for financial guarantee contracts.
Financial liabilities hedged by derivative instruments are
measured according to the hedge accounting criteria applicable to
fair value hedges; gains and losses resulting from subsequent
measurement at fair value, caused by fluctuations in interest
rates, are recognised in the Income Statement and are set off by
the effective portion of the gain or loss resulting from the
respective valuation of the hedging instrument at fair value.
Liabilities for financial guarantee contracts are measured at the
higher of the estimate of the contingent liability (determined in
accordance with IAS 37 - Provisions, Contingent Liabilities and
Contingent Assets)and the amount initially recognised less any
amount released to income over time.
Derivative financial instruments
Derivative financial instruments are used solely for hedging
purposes, for the purpose of reducing foreign exchange rate
risk, interest rate risk and the risk of fluctuations in market
prices.
In accordance with the conditions of IAS 39, derivative
financial instruments qualify for hedge accounting only when,
at the inception of the hedge, there is formal designation
and documentation of the hedging relationship, the hedge
is expected to be highly effective, the effectiveness can be
reliably measured and the hedge is actually highly effective
throughout the financial reporting periods for which it was
designated.
All derivative financial instruments are measured at fair value,
in accordance with IAS 39.
When financial instruments have the characteristics to qualify
for hedge accounting the following accounting treatment is
adopted:
■Fair value hedge –If a derivative financial instrument
is designated as a hedge of the exposure to changes in fair
value of a recognised asset or liability that is attributable
to a particular risk that could affect the Income Statement,
the gain or loss resulting from remeasuring the hedging
instrument at fair value is recognised in the Income Statement.
The gain or loss on the hedged item attributable to the hedged
risk adjusts the carrying amount of the hedged item and is
recognised in the Income Statement.
■Cash flow hedge –If a derivative financial instrument is
designated as a hedge of the exposure to variability in the future
cash flows of a recognised asset or liability or a highly probable
forecast transaction that could affect the Income Statement, the
effective portion of the gain or loss on the derivative financial
instrument is recognised directly in equity. The cumulative gain
or loss is reversed from equity and reclassified into the Income
When an impairment loss on assets subsequently reverses or
decreases, the carrying amount of the asset or cash-generating
unit is increased up to the revised estimate of its recoverable
amount, but not in excess of the carrying amount that would
have been recognised had no impairment loss been recorded.
The reversal of an impairment loss is recognised immediately
in income.
Financial instruments
Presentation
Financial instruments held by the company are presented in the
Balance Sheet as described in the following:
■Non-current assets: Investments, Other financial assets, Other
non-current assets.
■Current assets: Trade receivables, Current financial receivables,
Other current receivables, Cash and cash equivalents.
■Non-current liabilities: Non-current financial payables,
Other non-current liabilities.
■Current liabilities: Trade payables, Current financial payables
(including payables for advances on the sale of receivables),
Other payables.
The item “Cash and cash equivalents” consists of cash and
deposits with banks, units with liquidity funds and other highly
traded securities that are readily convertible to cash and which
are subject to an insignificant risk of changes in value.
The liability relating to financial guarantee contracts is included
in Non-current financial payables. The term financial guarantee
contracts refers to contracts under which the company guarantees
to make specific payments to reimburse the holder for a loss it
incurs because a specified debtor fails to make payment when
due in accordance with the terms of a debt instrument. The
present value of the related receivable for any outstanding
commissions is classified in Non-current financial assets.
Measurement
Investments in subsidiaries and associates are stated at cost
adjusted for any impairment losses.
The excess on acquisition of the purchase cost and the share
acquired by the company of the investee company’s net assets
measured at fair value is, accordingly,included in the carrying
value of the investment.
Investments in subsidiaries and associates are tested for
impairment annually and if necessary more often. If there
is any evidence that these investments have been impaired,
the impairment loss is recognised directly in the Income
Statement. If the company’s share of losses of the investee
exceeds the carrying amount of the investment and if the
company has an obligation to respond for these losses, the
company’s interest is reduced to zero and a liability is
recognised for its share of the additional losses. If the
impairment loss subsequently no longer exists it is reversed
and the reversal is recognised in the income statement up
to the limit of the cost of the investment.
Investments in other companies,comprising non-current
financial assets that are not held for trading (available-for-
sale financial assets), are initially measured at fair value. Any
subsequent profits and losses resulting from changes in fair
value, arising from quoted prices, are recognised directly in
equity until the investment is sold or is impaired; the total
profits and losses recognised in equity up to that date are
recognised in the Income Statement for the period.
Minor investments in other companies for which a market
quotation is not available are measured at cost, adjusted
for any impairment losses.
Other financial assets for which the company has the intent
to hold to maturity are recognised on the trade date and are
measured at purchase price (being representative of fair value)
on initial recognition in the Balance Sheet, inclusive of
transaction costs other than in respect of assets held for
trading. These assets are subsequently measured at amortised
cost using the effective interest method.