Chrysler 2010 Annual Report Download - page 158

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Sales of receivables
The Group sells a significant part of its financial, trade and tax receivables through either securitisation programs or factoring
transactions.
A securitisation transaction entails the sale of a portfolio of receivables to a securitisation vehicle. This special purpose entity
finances the purchase of the receivables by issuing asset-backed securities (i.e. securities whose repayment and interest
flow depend upon the cash flow generated by the portfolio). Asset-backed securities are divided into classes according to
their degree of seniority and rating: the most senior classes are placed with investors on the market; the junior class, whose
repayment is subordinated to the senior classes, is normally subscribed for by the seller. The residual interest in the receivables
retained by the seller is therefore limited to the junior securities it has subscribed for. In accordance with SIC 12 – Consolidation
– Special Purpose Entities (SPE), all securitisation vehicles are included in the scope of consolidation, because the subscription
of the junior asset-backed securities by the seller entails its control in substance over the SPE.
Furthermore, factoring transactions may be with or without recourse to the seller; certain factoring agreements without recourse
include deferred purchase price clauses (i.e. the payment of a minority portion of the purchase price is conditional upon the full
collection of the receivables), require a first loss guarantee of the seller up to a limited amount or imply a continuing significant
exposure to the receivables cash flow. These kinds of transactions do not meet IAS 39 requirements for asset derecognition,
since the risks and rewards have not been substantially transferred.
Consequently, all receivables sold through both securitisation and factoring transactions which do not meet IAS 39
derecognition requirements are recognised as such in the Group financial statements even though they have been legally sold;
a corresponding financial liability is recorded in the consolidated statement of financial position as Asset-backed financing.
Gains and losses relating to the sale of such assets are not recognised until the assets are removed from the Group statement
of financial position.
Inventories
Inventories of raw materials, semi finished products and finished goods, (including assets leased out under operating leases and
assets sold under a buy-back commitment that are held for sale) are stated at the lower of cost and net realisable value, cost
being determined on a first in-first-out (FIFO) basis. The measurement of inventories includes the direct costs of materials, labour
and indirect costs (variable and fixed). Provision is made for obsolete and slow-moving raw materials, finished goods, spare
parts and other supplies based on their expected future use and realisable value. Net realisable value is the estimated selling
price in the ordinary course of business less the estimated costs of completion and the estimated costs for sale and distribution.
The measurement of construction contracts is based on the stage of completion determined as the proportion that cost
incurred to the balance sheet date bears to the estimated total contract cost. These items are presented net of progress billings
received from customers. Any losses on such contracts are fully recorded in the income statement when they become known.
Assets and liabilities held for sale and Discontinued Operations
Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally
through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly
probable and the non-current asset (or disposal group) is available for immediate sale in its present condition. When the Group
is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified
as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest
in its former subsidiary after the sale.
Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amounts and fair
value less costs to sell.