Chrysler 2007 Annual Report Download - page 109

Fiat Group Consolidated Financial Statements at December 31, 2007 - Notes108
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.
More specifically, vehicles sold with a buy-back commitment
are accounted for as assets in Inventory if the sale originates
from the Fiat Group Automobiles 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.
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 and agency fees 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
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 Notes 4 and 13).
Government grants
Government grants are recognised in the financial
statements when there is reasonable assurance that the
Group company concerned will comply with the conditions
for receiving such grants and that the grants themselves will
be received. Government grants are recognised as income
over the periods necessary to match them with the related
costs which they are intended to compensate.