Chrysler 2010 Annual Report Download - page 163

FIAT GROUP
CONSOLIDATED
FINANCIAL
STATEMENTS
AT 31 DECEMBER
2010
NOTES
162
Recoverability of non-current assets (including goodwill)
Non-current assets include property, plant and equipment, intangible assets (including goodwill), investments and other financial
assets. Management reviews the carrying value of non-current assets held and used and that of assets to be disposed of when
events and circumstances warrant such a review. Management performs this review using estimates of future cash flows from
the use or disposal of the asset and a suitable discount rate in order to calculate present value. If the carrying amount of a non-
current asset is considered impaired, the Group records an impairment loss for the amount by which the carrying amount of
the asset exceeds its estimated recoverable amount from use or disposal determined by reference to its most recent business
forecasts.
In view of the present economic and financial situation, the Fiat Group has the following considerations in respect of its future
prospects:
In the current situation, when preparing figures for the consolidated financial statements for the year ended 31 December
2010 and more specifically when carrying out impairment testing of tangible and intangible assets, the various sectors of the
Group have taken into account their performance for 2011 as forecast in the budgets of the post-Demerger Fiat Group and
the Fiat Industrial Group, with assumptions and results consistent with the statements made in the section Significant events
subsequent to the year end and outlook. In addition, for subsequent years they have taken into account the forecasts and
targets included in the Fiat Group’s 2010-2014 Strategic Plan presented to the financial community on 21 April 2010. These
forecasts did not indicate the need to recognise any significant impairment losses.
In addition, should the assumptions underlying the forecast deteriorate further the following is noted:
The Group’s tangible assets and intangible assets with a finite useful life (which essentially regard development costs)
relate to models or products having a high technological content in line with the latest environmental laws and regulations,
which consequently renders them competitive in the present economic situation, especially in the more mature economies
in which particular attention is placed on the eco-sustainability of those types of products. As a result, therefore, despite
the fact that the automotive sector is one of the markets most affected by the crisis in the immediate term, it is considered
highly probable that the life cycle of these products can be lengthened to extend over the period of time involved in a
slower economic recovery, in this way allowing the Group to achieve sufficient earnings flows to cover the investments,
albeit over a longer timescale.
Around 61% of capitalised goodwill relates to the CNH business and around 27% to Ferrari. In the case of the goodwill
relating to the CNH business (€1,794 million at 31 December 2010), which has been classified as Discontinued Operations
since it relates to businesses included in the Fiat Industrial Group, detailed analyses using various methodologies were
carried out to test its recoverability; 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.
Residual values of assets leased out under operating lease arrangements or sold with a buy-back commitment
The Group reports assets rented to customers or leased to them 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 on a
straight-line basis over the term of the lease. Depreciation expense for assets subject to operating leases is recognised on a
straight-line basis over the lease term in amounts necessary to reduce the cost of an assets to its estimated residual value at
the end of the lease term. The estimated residual value of 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 of 2009. The used vehicle market