Chrysler 2010 Annual Report Download - page 157

FIAT GROUP
CONSOLIDATED
FINANCIAL
STATEMENTS
AT 31 DECEMBER
2010
NOTES
156
Receivables with maturities of over one year which bear no interest or an interest rate significantly lower than market rates are
discounted using market rates.
Assessments are made regularly as to whether there is any objective evidence that a financial asset or group of assets may be
impaired. If any such evidence exists, an impairment loss is included in the income statement for the period.
Except for derivative instruments, financial liabilities are measured at amortised cost using the effective interest method.
Financial assets and liabilities hedged by derivative instruments are measured in accordance with hedge accounting principles
applicable to fair value hedges: gains and losses arising from remeasurement at fair value, due to changes in the respective
hedged risk, are recognised in the income statement and are offset by the effective portion of the loss or gain arising from
remeasurement at fair value of the hedging instrument.
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 it 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 hedges – 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 hedges – 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 forecasted transaction and could affect the income statement,
the effective portion of any gain or loss on the derivative financial instrument is recognised directly in other comprehensive
income. The cumulative gain or loss is removed from other comprehensive income and recognised in the income statement
at the same time as the economic effect arising from the hedged item affects income. 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 other comprehensive income 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 other comprehensive income is recognised in the income statement immediately.
Hedges of a net investment – If a derivative financial instrument is designated as a hedging instrument for a net investment
in a foreign operation, the effective portion of the gain or loss on the derivative financial instrument is recognised in other
comprehensive income. The cumulative gain or loss is reclassified from other comprehensive income to profit or loss on the
disposal of the foreign operation.
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.