Chrysler 2006 Annual Report Download - page 52

Fiat Group Consolidated Financial Statements at December 31, 2006 -Notes 101
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 November 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,
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.
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. New
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.
The measurement of work in progress is based on the stage of
completion. These items are presented net of progress billings
received from customers. Any losses on such contracts are
fully recorded in the income statement when they become
known.
Assets held for sale
Assets held for sale include non-current assets (or assets
included in disposal groups) whose carrying amount will be
recovered principally through a sale transaction rather than
through continuing use. Assets held for sale are measured at
the lower of their carrying amount and fair value less disposal
costs.
Employee benefits
Pension plans
Employees of the Group participate in several defined benefit
and/or defined contribution pension plans in accordance with
local conditions and practices in the countries in which the
Group operates. Defined benefit pension plans are based on
the employees’ years of service and the remuneration earned
by the employee during a pre-determined period.
The Group’s obligation to fund defined benefit pension plans
and the annual cost recognised in the income statement is
determined on an actuarial basis using the projected unit credit
method. The portion of net cumulative actuarial gains and
losses which exceeds the greater of 10% of the present value
of the defined benefit obligation and 10% of the fair value of
plan assets at the end of the previous year is amortised over
the average remaining service lives of the employees (the
“corridor approach”). In the context of IFRS First-time
Adoption, the Group elected to recognise all cumulative
actuarial gains and losses that existed at January 1, 2004,
even though it has decided to use the corridor approach for
subsequent actuarial gains and losses. Past service costs are
recognised on a straight-line basis over the average period
remaining until the benefits become vested. The expense
related to the reversal of discounting pension obligations for
defined benefit plans are reported separately as part of the
Fiat Group Consolidated Financial Statements at December 31, 2006 -Notes 100
Group’s financial expense. All other costs relating to
allocations to pension provisions are allocated to costs
by function in the income statement.
The post-employment benefit obligation recognised in the
balance sheet represents the present value of the defined
benefit obligation as adjusted for unrecognised actuarial gains
and losses, arising from the application of the corridor method
and unrecognised past service cost, reduced by the fair value
of plan assets. Any net asset resulting from this calculation is
recognised at the lower of its amount and the total of any
cumulative unrecognised net actuarial losses and past service
cost, and the present value of any economic benefits available
in the form of refunds from the plan or reductions in future
contributions to the plan.
Payments to defined contribution plans are recognised
as an expense in the income statement as incurred.
Post-employment plans other than pensions
The Group provides certain post-employment defined benefit
schemes, mainly healthcare plans. The method of accounting
and the frequency of valuations are similar to those used for
defined benefit pension plans.
The reserve for employee severance indemnities of Italian
companies (“TFR”) is considered a defined benefit plan
and is accounted for accordingly.
Equity compensation plans
The Group provides additional benefits to certain members
of senior management and employees through equity
compensation plans (stock option plans). In accordance
with IFRS 2 – Share-based Payment,these plans represent
acomponent 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 November 7,
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 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 dealer agency fee
in the case of direct sales.
Cost of sales also includes 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.
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