Chrysler 2010 Annual Report Download - page 162

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Earnings per share
Basic earnings per share are calculated by dividing the profit/(loss) attributable to owners of the parent entity assignable to
the various classes of shares by the weighted average number of shares outstanding during the year. For diluted earnings per
share, the weighted average number of shares outstanding is adjusted assuming conversion of all dilutive potential shares.
Use of estimates
The preparation of financial statements and related disclosures that conform to IFRS requires management to make judgements,
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results could differ from those estimates. Estimates
and assumptions are reviewed periodically and the effects of any changes are recognised in the period in which the estimate is
revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current
and future periods.
In this respect the situation caused by the profound economic and financial crisis which began in 2008 has led to the need
to make assumptions regarding future performance which are characterised by significant uncertainty; as a consequence,
therefore, it cannot be excluded that results may arise during the next year which differ from estimates, and which therefore
might require adjustments, even significant, to be made to the carrying amount of the items in question, which at the present
moment can clearly neither be estimated nor predicted. The main items affected by these situations of uncertainty are the
allowances for doubtful accounts receivable and inventories, non-current assets (tangible and intangible assets), the residual
values of vehicles leased out under operating lease arrangements or sold with buy-back clauses, pension funds and other post-
employment benefits, and deferred tax assets.
The following are the critical judgements and the key assumptions concerning the future, that management has made in the
process of applying the Group accounting policies and that have the most significant effect on the amounts recognised in the
consolidated financial statements or that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year.
Allowance for doubtful accounts
The allowance for doubtful accounts reflects management’s estimate of losses inherent in the wholesale and retail credit
portfolio. This allowance is based on the Group’s estimate of the losses to be incurred, which derives from past experience
with similar receivables, current and historical past due amounts, dealer termination rates, write-offs and collections, the
careful monitoring of portfolio credit quality and current and projected economic and market conditions. Should the present
economic and financial situation persist or even worsen, this could lead to a further deterioration in the financial situation
of the Group’s debtors compared to that already taken into consideration in calculating the allowances recognised in the
financial statements.
Allowance for obsolete and slow-moving inventory
The allowance for obsolete and slow-moving inventory reflects management’s estimate of the loss in value expected by the
Group, and has been determined on the basis of past experience and historical and expected future trends in the used vehicle
market. A worsening of the economic and financial situation could cause a further deterioration in conditions in the used vehicle
market compared to that already taken into consideration in calculating the allowances recognised in the financial statements.