Chrysler 2006 Annual Report Download - page 126

Fiat S.p.A. Financial Statements at December 31, 2006 - Notes to the Financial Statements 249Fiat S.p.A. Financial Statements at December 31, 2006 - Notes to the Financial Statements248
Employee benefits
Post-employment plans
The company provides pension plans and other post-
employment plans to its employees. The pension plans for which
the company has an obligation under Italian law are defined
contribution plans, while the other post-employment plans, for
which the company generally has an obligation under national
collective bargaining agreements, are defined benefit plans. The
payments made by the company for defined contribution plans
are recognised in the Income Statement as a cost when incurred.
Defined benefit plans are based on the employees’ working lives
and on the salary or wage received by the employee over a pre-
determined period of service.
The employees’ severance indemnity (trattamento di fine
rapporto or TFR)is considered to be a defined benefit plan and is
accounted for in the same way as other defined benefit plans.
The company’s obligation to fund defined benefit plans
and the annual cost recognised in the Income Statement are
determined by independent actuaries using the projected unit
credit method. The portion of net actuarial gains and losses
at the end of the previous reporting period that exceeds the
greater of 10% of the present value of the defined benefit
obligation and 10% of the fair value of the plan assets at that
date is deferred and recognised over the remaining working lives
of the employees (the “corridor method”); the portion
of actuarial gains and losses that does not exceed this threshold
is deferred.
In the context of IFRS first-time adoption, the company elected to
recognise all cumulative actuarial gains and losses at January 1,
2004 (date of first-time adoption of IFRS by the Fiat Group),
although it has adopted the corridor method for those arising
subsequently.
The expense related to the reversal of discounting pension
obligations for defined benefit plans are reported separately
as part of the Group’s financial expense.
The liability for obligations arising under defined benefit plans
and due on termination of the employment contract represents
the present value of the obligation adjusted by actuarial gains
and loses deferred as the result of applying the corridor approach
and by past service costs for employee service in prior periods
that will be recognised in future years.
Other long-term benefits
The accounting treatment of other long-term benefits is the same
as that for post-employment benefit plans except for the fact that
actuarial gains and losses and past service costs are fully
recognised in the Income Statement in the year in which they
arise and the corridor method is not applied.
Equity compensation plans
The company provides additional benefits to certain members
of top management and to certain employees through equity
compensation plans. Under IFRS 2 - Share-based Payment,these
plans are a component of employee remuneration whose cost is
measured by the fair value of the stock options at the grant date
recognised in the Income Statement on a straight-line basis from
the grant date to the vesting date, with a counter entry to equity.
Changes in fair value after the grant date do not have any effect
on the initial measurement.
The company has applied the transitional provisions of IFRS 2
and as a result the Standard is applicable to all stock option plans
granted after November 7, 2002 but which had not yet vested by
January 1, 2005, the effective date of the Standard. Detailed
disclosures are also provided for plans granted before that date.
Statement in the period in which the hedged transaction is
recognised. Gains or losses associated with a hedge (or part of
a hedge) which is no longer effective are immediately recognised
in the Income Statement. If a hedging instrument or a hedging
relationship is terminated, but the transaction being hedged has
not yet occurred, the cumulative gains and losses recognised in
equity until that time are recognised in the Income Statement at
the time the transaction occurs. If a hedged transaction is no
longer considered probable, the unrealised gains and losses that
remain in equity are immediately recognised in the Income
Statement.
If hedge accounting cannot be used, the gains and losses
resulting from changes in the measurement of the derivative
financial instrument at fair value are immediately recognised
in the Income Statement.
Inventory
Inventory consists of work in progress on specific contracts and in
particular relates to long-term construction contracts signed by
Fiat S.p.A. with Treno Alta Velocità – T.A.V. S.p.A. under which
Fiat S.p.A. as general contractor performs the coordination,
organisation and management of the work.
Work in progress refers to activities carried out directly and
is measured by applying the percentage of completion to the
contract fee, thereby recognising the margins deriving from the
work performed to date. The cost to cost method is used
to determine the percentage of completion of a contract (by
dividing the costs incurred by the total costs forecast for the
whole construction).
Any losses expected to be incurred on contracts are fully
recognised in the Income Statement and as a reduction
in contract work in progress when they become known.
Any advances received from customers for services performed
are presented as a reduction in inventory. If the amount of
advances exceeds inventory, the excess is recognised as
Advances in the item Other payables.
Sales of receivables
Receivables sold in factoring operations are derecognised
from assets if and only if the risks and rewards relating to
their ownership have been substantially transferred to the
buyer. Receivables sold with recourse and without recourse
that do not satisfy this condition remain in the company’s
Balance Sheet even if they have been sold from a legal point
of view; in this case, an obligation of the same amount is
recognised as a liability for the advances received.
Assets held for sale
Any amounts in this item will consist of non-current assets
(or assets and liabilities included in disposal groups) whose
carrying amount will be recovered principally through a sale
transaction rather than through continuing use. Assets held
for sale (or disposal groups) are measured at the lower of
their carrying amount and fair value less disposal costs.