Chrysler 2008 Annual Report Download - page 267

Fiat S.p.A. Statutory Financial Statements at 31 December 2008266
process used to determine the ‘value in use’ of this investment
was based, for the purposes of the 2006 and 2007 financial
statements, on the expected results included in the 2007-2010
business plan, appropriately adjusted for risks and
uncertainties inherent in the assumptions upon which the plan
was based, in addition to an estimate of terminal value
(“ultimate disposal”). Given the changed economic scenario,
estimates made in preparing the financial statements for the
year ended 31 December 2008 have taken into consideration
the expected performance for 2009, with assumptions and
results consistent with the statements made in the section
“Significant Events Subsequent to Year End and Outlook” in
the Report on Operations. Consistently, new earnings estimates
for subsequent periods (up to 2012) were made, reflecting due
prudence in light of the significant impact of the current crisis
on economic and market conditions. For valuation purposes,
these estimated annual results were reduced, using adjustment
factors which increased over the projected time horizon (as
estimates become more difficult), as a measure of prudence
given the uncertainty as to the duration of the current crisis
and the recovery of normal trading conditions.
A theoretical terminal value (“ultimate disposal”) was then
estimated averaging the forecast results for 2011 and 2012,
adjusted as described above and without any future growth
rate assumption being made.
A discount rate of 15% was used, which is considered
particularly prudent both for the sector and the regions in
which the subsidiary operates. The estimates and underlying
assumptions provided reasonable support for maintaining the
existing carrying value of the investment at €4.7 billion. For
indicative purposes only, the sensitivity of the book value of
the investment to a 10% change in the projections upon which
the terminal value is based would be in the order of around
6%. On the other hand, use of a discount rate which was 1
percentage point lower (i.e., 14%) would result in an increase
in the order of 9% in book value (all other assumptions
remaining unchanged).
Interpretations and amendments
effective from 1 January 2008 but not
applicable to the Company
The following interpretations, applicable for 2008, relate to
matters that are not applicable to the Company.
IFRIC 12 – Service Concession Arrangements (applicable
retrospectively from 1 January 2008);
IFRIC 14 - IAS 19 – Defined Benefit Assets and Minimum
Funding Requirements
(applicable retrospectively from 1
January 2008);
Amendments to IAS 39 - Financial Instruments: Recognition
and Measurement
and IFRS 7 - Financial Instruments:
Disclosures
that would permit the reclassification of some non-
derivative financial assets which are classified under the fair
value through profit or loss category in particular
circumstances. The amendment also permits an entity to
transfer a financial asset from the available-for-sale category to
the loans and receivables category where it has the intention
and ability to hold such asset for the foreseeable future.
Although this amendment applies from 1 July 2008, it has had
no effect on the financial statements presented herein as none
of the reclassifications permitted by the amendment were
carried out by the Company.
Accounting principles, amendments
and interpretations for which the Company
has not elected early adoption
On 29 March 2007 the IASB issued a revised version of IAS 23
– Borrowing costs. The standard is applicable from 1 January
2009. The main change from the previous version is the
removal of the option of immediately recognising as an
expense borrowing costs that relate to assets that take a
substantial period of time to get ready for use or sale. The
standard shall apply to borrowing costs relating to qualifying
assets for which the commencement date for capitalisation is
on or after 1 January 2009.