Chrysler 2011 Annual Report Download - page 276

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Fiat S.p.A. - Statutory
Financial Statements
at 31 December 2011
Regular assessments are made to determine whether there is objective evidence that financial assets, separately or within a group of
assets, have been impaired. Where such evidence exists, an impairment loss is recognized in the income statement for the period.
Non-current debt, other non-current liabilities, trade payables, current debt and other debt are initially recognized at fair value
(normally represented by the cost of the transaction from which the liability arises), in addition to any transaction costs.
With the exception of derivative instruments and liabilities arising from financial guarantees, financial liabilities are subsequently
measured at amortized cost using the effective interest method. Measurement of financial liabilities hedged by derivative instruments
follows the principles of hedge accounting for fair value hedges. Gains and losses arising from subsequent measurement at fair value,
caused by fluctuations in interest rates, are recognized through the income statement and are offset by the effective portion of the gain
or loss arising from subsequent measurement at fair value of the hedging instrument.
Liabilities arising from financial guarantees 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
amounts already released to profit and loss.
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 at fair value in accordance with IAS 39.
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 against variability in future cash flows of an
existing asset or liability or a transaction considered highly probable that could impact the income statement, the effective portion
of the gain or loss on the hedging instrument is recognized directly in equity. Any cumulative gain or loss is reversed 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 has not yet occurred, any gain or loss previously
recognized in equity is recognized through profit and loss at the time the hedged 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