Chrysler 2010 Annual Report Download - page 314

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Assessments are made regularly for the purpose of verifying if there is objective evidence that a financial asset, separately or
within a group of assets, may have been impaired. If any such evidence exists, an impairment loss is included in the income
statement for the period.
Non-current financial payables, other non-current liabilities, trade payables, current financial payables and other
payables are measured on initial recognition at fair value (normally represented by their original cost), including any transaction
costs.
Financial liabilities are subsequently measured at amortized cost using the effective interest method, except for derivative
financial instruments and liabilities for financial guarantee contracts. Financial liabilities hedged by derivative instruments are
measured in accordance with hedge accounting principles applicable to fair value hedges. Gains and losses arising from
measurement at fair value, caused by fluctuations in interest rates, are recognized in the income statement and are offset by the
effective portion of the gain or loss arising from remeasurement at fair value of the hedging instrument.
Liabilities for financial guarantee contracts are measured at the higher of the estimate of the contingent liability (determined in
accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets) and the amount initially recognized less any
amount released to income over time.
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 the hedge
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 hedge – Where a derivative financial instrument is designated as a hedge of the exposure to changes in fair value
of a recognized 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 recognized 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 recognized in the income
statement.
Cash flow hedge – Where a derivative financial instrument is designated as a hedge of the exposure to variability in future
cash flows of a recognized asset or liability or a highly probable forecast transaction and could affect the income statement,
the effective portion of the gain or loss on the derivative financial instrument is recognized directly in equity. The cumulative gain
or loss is removed from equity and recognized in the income statement in the same period in which the hedged transaction
is recognized. The gain or loss associated with a hedge or part of a hedge that has become ineffective is recognized 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 realized to the point of termination remains in shareholders’ equity and
is recognized in the income statement at the same time as the underlying transaction occurs. If the hedged transaction is
no longer probable, the cumulative unrealized gain or loss recognized in equity is immediately transferred to the income
statement. If hedge accounting cannot be applied, the gains or losses from the fair value measurement of derivative financial
instruments are recognized immediately in the income statement.