Chrysler 2009 Annual Report Download - page 142

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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. Assets sold under a buy-back commitment that are initially recognised
in Property, plant and equipment are reclassified to Inventories at the end of the agreement term if they are held for sale. The
proceeds from the sale of such assets are recognised as Revenues.
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.
Research and development costs
This item includes research costs, development costs not eligible for capitalisation and the amortisation of development costs
recognised as assets in accordance with IAS 38 (see Notes 4 and 14).
Government grants
Government grants are recognised in the financial statements when there is reasonable assurance that the company concerned
will comply with the conditions for receiving such grants and that the grants themselves will be received. Government grants
are recognised as income over the periods necessary to match them with the related costs which they are intended to
compensate.
The benefit of a government loan at a below-market rate of interest is treated as a government grant. The benefit of the below-
market rate of interest is measured as the difference between the initial carrying value of the loan (fair value plus transaction
costs) and the proceeds received, and is accounted for in accordance with the policies already used for the recognition of
government grants.
Taxes
Income taxes include all taxes based upon the taxable profits of the Group. Taxes on income are recognised in the income
statement except to the extent that they relate to items directly charged or credited to equity, in which case the related income
tax effect is recognised in equity. Provisions for income taxes that could arise on the distribution of a subsidiary’s undistributed
profits are only made where there is a current intention to distribute such profits. Other taxes not based on income, such as