Chrysler 2010 Annual Report Download - page 164

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was carefully monitored throughout 2010 to ensure that write-downs were properly determined. It cannot however be excluded
that additional write-downs may be needed if market conditions should deteriorate even further.
Sales allowances
At the later time of sale or the time an incentive is announced to dealers, the Group records the estimated impact of sales
allowances in the form of dealer and customer incentives as a reduction of revenue. There may be numerous types of incentives
available at any particular time. The determination of sales allowances requires management estimates based on different
factors.
Product warranties
The Group makes provisions for estimated expenses related to product warranties at the time products are sold. Management
establishes these estimates based on historical information on the nature, frequency and average cost of warranty claims. The
Group seeks to improve vehicle quality and minimise warranty expenses arising from claims.
Pension and other post-retirement benefits
Group companies sponsor pension and other post-retirement benefits in various countries. The Group’s main defined benefit
plans are to be found in the United Kingdom, Germany and Italy and, as far as the Discontinued Operations relating to the Fiat
Industrial Group are concerned, also in the United States. Management uses several statistical and judgmental factors that
attempt to anticipate future events in calculating the expense, the liability and the assets related to these plans. These factors
include assumptions about the discount rate, expected return on plan assets, rate of future compensation increases and
health care cost trend rates. In addition, the Group’s actuarial consultants also use subjective factors such as withdrawal and
mortality rates in making relevant estimates. Regarding the discount rate, in 2010 yields of high quality corporate bonds were
not subject to the same level of volatility as in 2008. It cannot be excluded, though, that future significant changes in the yields
of corporate bonds may lead to effects on liabilities and unrecognised actuarial gains and losses, taking into account however
any simultaneous changes in the returns of plan assets where these may exist.
Realisation of deferred tax assets
At 31 December 2010, the Fiat Group had deferred tax assets and theoretical tax benefits arising from tax loss carryforwards
of €7,767 million, of which €2,855 million is not recognised in the financial statements, and balances of €2,555 million and
€685 million respectively relating to Discontinued Operations. The corresponding totals at 31 December 2009 were €7,784
million and €3,307 million, respectively. Management has recorded these valuation allowances to reduce deferred tax assets
to the amount that it believes it is probable will be recovered. In making these adjustments, management has taken into
consideration figures from budgets and forecasts consistent with those used for impairment testing and discussed in the
preceding paragraph relating to the recoverable amount of non-current assets. Moreover, the adjustments that have been
recognised are considered to be sufficient to protect against the risk of a further deterioration of the assumptions in these
forecasts, taking account of the fact that the net deferred assets accordingly recognised relate to temporary differences and
tax losses which, to a significant extent, may be recovered over a very long period, and are therefore consistent with a situation
in which the time needed to exit from the crisis and for an economic recovery to occur extends beyond the term implicit in the
above-mentioned estimates.
Contingent liabilities
The Group is the subject of legal proceedings and tax issues covering a range of matters, which are pending in various
jurisdictions. Due to the uncertainty inherent in such matters, it is difficult to predict the final outcome of such matters. The cases
and claims against the Group often raise difficult and complex factual and legal issues, which are subject to many uncertainties,
including but not limited to the facts and circumstances of each particular case and claim, the jurisdiction and the differences
in applicable law. In the normal course of business management consults with legal counsel and certain other experts on
matters related to litigation and taxes. The Group accrues a liability when it is determined that an adverse outcome is probable
and the amount of the loss can be reasonably estimated. In the event an adverse outcome is possible or an estimate is not
determinable, the matter is disclosed.