Chrysler 2008 Annual Report Download - page 114

Fiat Group Consolidated Financial Statements at 31 December 2008 113
Current financial assets and held-to-maturity securities are
recognised on the basis of the settlement date and, on initial
recognition, are measured at acquisition cost, including
transaction costs.
Subsequent to initial recognition, available-for-sale and held
for trading financial assets are measured at fair value. When
market prices are not available, the fair value of available-for-
sale financial assets is measured using appropriate valuation
techniques e.g. discounted cash flow analysis based on market
information available at the balance sheet date.
Gains and losses on available-for-sale financial assets are
recognised directly in equity until the financial asset
is disposed or is determined to be impaired; when the asset is
disposed of, the cumulative gains or losses, including those
previously recognised in equity, are reclassified into the
income statement for the period; when the asset is impaired,
accumulated losses are recognised in the income statement.
Gains and losses arising from changes in fair value of held for
trading financial instruments are included in the income
statement for the period.
Loans and receivables which are not held by the Group for
trading (originated loans and receivables), held-to-maturity
securities and all financial assets for which published price
quotations in an active market are not available and whose fair
value cannot be determined reliably, are measured, to the
extent that they have a fixed term, at amortised cost, using the
effective interest method. When the financial assets do not
have a fixed term, they are measured at acquisition cost.
Receivables with maturities of over one year which bear no
interest or an interest rate significantly lower than market rates
are discounted using market rates.
Assessments are made regularly as to whether there is any
objective evidence that a financial asset or group of assets may
be impaired. If any such evidence exists, an impairment loss
is included in the income statement for the period.
Except for derivative instruments, financial liabilities are
measured at amortised cost using the effective interest
method.
Financial assets and liabilities hedged by derivative
instruments are measured in accordance with hedge
accounting principles applicable to fair value hedges: gains
and losses arising from remeasurement at fair value, due to
changes in relevant hedged risk, are recognised in the income
statement and are offset by the effective portion of the loss or
gain arising from remeasurement at fair value of the hedging
instrument.
Derivative financial instruments
Derivative financial instruments are used for hedging
purposes, in order to reduce currency, interest rate and market
price risks. In accordance with 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, its effectiveness can be reliably
measured and it is highly effective throughout the financial
reporting periods for which the hedge is designated.
All derivative financial instruments are measured in
accordance with IAS 39 at fair value.
When derivative financial instruments qualify for hedge
accounting, the following accounting treatment applies:
Fair value hedge – Where 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 and could affect the income statement, the gain
or loss 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 – Where a derivative financial instrument is
designated as a hedge of the exposure to variability in future
cash flows of a recognised asset or liability or a highly
probable forecasted transaction and could affect income
statement, the effective portion of any gain or loss on the
derivative financial instrument is recognised directly in equity.
The cumulative gain or loss is removed from equity and
recognised in the income statement at the same time as the
economic effect arising from the hedged item affects income.
The gain or loss associated with a hedge or part of a hedge
that has become ineffective is recognised in the income
statement immediately. When a hedging instrument or hedge