Chrysler 2008 Annual Report Download - page 263

Fiat S.p.A. Statutory Financial Statements at 31 December 2008262
Assessments are made regularly for the purpose of verifying if
there is objective evidence that a financial asset, separately or
within a group of assets, may have been impaired. If any such
evidence exists, an impairment loss is included 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 in accordance with hedge accounting principles
applicable to fair value hedges. Gains and losses arising from
measurement at fair value, caused by fluctuations in interest
rates, are recognised in the income statement and are offset by
the effective portion of the gain or loss arising from
remeasurement at fair value of the hedging instrument.
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, 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
forecast transaction and 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 removed from equity and recognised in the income
statement in the same period in which the hedged transaction is
recognised. 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 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 shareholders’ equity and is
recognised in the income statement at the same time as the
underlying transaction occurs. If the hedged transaction is no
longer probable, the cumulative unrealised gain or loss held in
shareholders’ equity is recognised in the income statement
immediately.
If hedge accounting cannot be applied, the gains or losses from
the fair value measurement of derivative financial instruments
are recognised immediately 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 coordinates,
organises and manages the work.