Chrysler 2009 Annual Report Download - page 284

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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.
Work in progress refers to activities carried out directly and is recognised through measurement of the total contract income
on a percentage completion basis, with the incremental portion of the work performed to date being recognised in the period.
The cost-to-cost method is used to determine the percentage of completion of a contract (by dividing the costs incurred by the
total costs forecast for the whole construction).
Any losses expected to be incurred on contracts are fully recognised in the income statement and as a reduction in contract
work in progress when they become known.
Any advances received from customers for services performed are presented as a reduction in inventory. If the amount of
advances exceeds inventory, the excess is recognised as advances in the item other payables.
Sales of receivables
Receivables sold in factoring transactions are derecognised if and only if the risks and rewards relating to ownership have been
substantially transferred to the buyer. Receivables sold with recourse and without recourse that do not satisfy this condition
remain in the statement of financial position, even if they have been legally sold; in such cases, a liability for the same amount is
recognised for advances received.
Assets held for sale
This item includes non-current assets (or assets included in disposal groups) whose carrying amount will be recovered principally
through a sale rather than through continuing use. Assets held for sale (or disposal groups) are measured at the lower of their
carrying amount and fair value less disposal costs.