Chrysler 2007 Annual Report Download - page 107

Fiat Group Consolidated Financial Statements at December 31, 2007 - Notes106
Sales of receivables
The Group sells a significant part of its financial, trade and tax
receivables through either securitisation programs or factoring
transactions.
A securitisation transaction entails the sale of a portfolio
of receivables to a securitisation vehicle.
This special purpose entity finances the purchase of the
receivables by issuing asset-backed securities (i.e. securities
whose repayment and interest flow depend upon the cash flow
generated by the portfolio). Asset-backed securities are divided
into classes according to their degree of seniority and rating:
the most senior classes are placed with investors on the
market; the junior class, whose repayment is subordinated to
the senior classes, is normally subscribed for by the seller. The
residual interest in the receivables retained by the seller is
therefore limited to the junior securities it has subscribed for.
In accordance with SIC 12 –
Consolidation – Special Purpose
Entities (SPE)
, all securitisation vehicles are included in the
scope of consolidation, because the subscription of the junior
asset-backed securities by the seller entails its control in
substance over the SPE.
Furthermore, factoring transactions may be with or without
recourse to the seller; certain factoring agreements without
recourse include deferred purchase price clauses (i.e. the
payment of a minority portion of the purchase price is
conditional upon the full collection of the receivables), require
a first loss guarantee of the seller up to a limited amount or
imply a continuing significant exposure to the receivables cash
flow. These kinds of transactions do not meet IAS 39
requirements for assets derecognition,
since the risks and rewards have not been substantially
transferred.
Consequently, all receivables sold through both securitisation
and factoring transactions which do not meet IAS 39
derecognition requirements are recognised as such in the
Group financial statements even though they have been legally
sold; a corresponding financial liability is recorded in the
consolidated balance sheet as “Asset-backed financing”. Gains
and losses relating to the sale of such assets are not
recognised until the assets are removed from the Group
balance sheet.
Inventory
Inventories of raw materials, semi finished products and
finished goods are stated at the lower of cost and net
realisable value, cost being determined on a first in-first-out
(FIFO) basis. The measurement of inventories includes the
direct costs of materials, labour and indirect costs (variable
and fixed). Provision is made for obsolete and slow-moving
raw materials, finished goods, spare parts and other supplies
based on their expected future use and realisable value. Net
realisable value is the estimated selling price in the ordinary
course of business less the estimated costs of completion and
the estimated costs for sale and distribution.
The measurement of construction contracts is based on the
stage of completion determined as the proportion that cost
incurred to balance sheet date bear to the estimated total
contract cost. 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.
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