Chrysler 2007 Annual Report Download - page 255

Fiat S.p.A. Financial Statements at December 31, 2007 - Notes to the Financial Statements254
measured at cost. Receivables with a due 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 a cost 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
additional 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 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 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.
When a hedging instrument or hedge relationship is
terminated but the hedged transaction is still expected to
occur, the cumulative gain or loss realised to the point of
termination remains in stockholders’ equity and is recognised
in the income statement at the same time as the related
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.