Chrysler 2009 Annual Report Download - page 145

144 FIAT GROUP
CONSOLIDATED
FINANCIAL
STATEMENTS
AT 31 DECEMBER
2009
NOTES
Around 60% of capitalised goodwill relates to the CNH business and around 28% to Ferrari. For the former the Group
prepared detailed analyses using various methodologies to test the recoverability of the goodwill allocated to this Sector,
which amounted to €1,662 million at 31 December 2009; the underlying considerations are described in Note 14. As
concerns Ferrari, the exclusivity of the business, its historical profitability and its future earnings prospects indicate that
the carrying amount will continue to be recoverable, even in the event of economic and market conditions which remain
difficult and may deteriorate further.
Residual values of assets leased out under operating lease arrangements or sold with a buy-back commitment
The Group reports assets rented or leased to customers under operating leases as tangible assets. Furthermore, new vehicle
sales with a buy-back commitment are not recognised as sales at the time of delivery but are accounted for as operating leases
if it is probable that the vehicle will be bought back. The Group recognises income from such operating leases over the term of
the lease on a straight-line basis. Depreciation expense for assets subject to operating leases is recognised on a straight-line
basis over the term of the lease in amounts necessary to reduce the cost of the assets to its estimated residual value at the
end of the lease term. The estimated residual value of the leased assets is calculated at the lease inception date on the basis of
published industry information and historical experience.
Realisation of the residual values is dependant on the Group’s future ability to market the assets under the then-prevailing market
conditions. The Group continually evaluates whether events and circumstances have occurred which impact the estimated
residual values of the assets on operating leases. More specifically the Group recognised further write-downs in 2009, in
addition to those usually made on the basis of historical trends in residual values, to take account of the sudden deterioration in
the used vehicle market over the final part of 2008 and throughout the whole 2009. It cannot be excluded that additional write-
downs may be needed if market conditions should deteriorate yet again.
Sales allowance
At the later time of sale or the time an incentive is announced to dealers, the Group records the estimated impact of sales
allowances in the form of dealer and customer incentives as a reduction of revenue. There may be numerous types of incentives
available at any particular time. The determination of sales allowances requires management estimates based on different
factors.
Product warranties
The Group makes provisions for estimated expenses related to product warranties at the time products are sold. Management
establishes these estimates based on historical information on the nature, frequency and average cost of warranty claims. The
Group seeks to improve vehicle quality and minimise warranty expenses arising from claims.
Pension and other post-retirement benefits
Group companies sponsor pension and other post-retirement benefits in various countries. In the US, the United Kingdom,
Germany and Italy, the Group has major defined benefit plans. Management uses several statistical and judgmental factors
that attempt to anticipate future events in calculating the expense, the liability and the assets related to these plans. These
factors include assumptions about the discount rate, expected return on plan assets, rate of future compensation increases and
health care cost trend rates. In addition, the Group’s actuarial consultants also use subjective factors such as withdrawal and
mortality rates in making relevant estimates. Regarding the discount rate, in 2009 yields of high quality corporate bonds were
not subject to the same level of volatility as in 2008. It cannot be excluded, though, that future significant changes in the yields
of corporate bonds may lead to effects on liabilities and unrecognised actuarial gains and losses, taking into account however
any simultaneous changes in the returns of plan assets where these may exist.
Realisation of deferred tax assets
As of 31 December 2009, the Group had deferred tax assets and theoretical tax benefit arising from tax loss carryforwards of
€7,784 million and valuation allowances against these assets of €3,307 million. The corresponding totals at 31 December 2008
were €7,325 million and €2,899 million, respectively. Management has recorded these valuation allowances to reduce deferred