Chrysler 2008 Annual Report Download - page 117

Fiat Group Consolidated Financial Statements at 31 December 2008116
Provisions
The Group records provisions when it has an obligation, legal
or constructive, to a third party, when it is probable that an
outflow of Group resources will be required to satisfy the
obligation and when a reliable estimate of the amount can be
made.
Changes in estimates are reflected in the income statement
in the period in which the change occurs.
Treasury shares
Treasury shares are presented as a deduction from equity.
The original cost of treasury shares and the proceeds 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.