Chrysler 2007 Annual Report Download - page 256

Fiat S.p.A. Financial Statements at December 31, 2007 - Notes to the Financial Statements 255
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 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.
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 scheme underlying the employee severance indemnity of
the Italian Group companies (the TFR) was classified as a
defined benefit plan until December 31, 2006. The legislation
regarding this scheme and leading to this classification was
amended by Law no. 296 of December 27, 2006 (the “2007
Finance Law”) and subsequent decrees and regulations issued
in the first part of 2007. In view of these changes, and with
specific reference to those companies with at least 50
employees, this scheme only continues to be classified as a
defined benefit plan in the consolidated financial statements
for those benefits accruing up to December 31, 2006 (and not
yet settled by the balance sheet date), while after that date the
scheme is classified as a defined contribution plan. The effects
of the introduction of the new legislation from an accounting
standpoint are discussed in Note 19.
The company’s obligation to fund defined benefit plans and the
annual cost recognised in the income statement are determined