Chrysler 2011 Annual Report Download - page 277

Fiat S.p.A.
Statutory
Financial
Statements
at 31 December
2011
Notes
276
Inventory
Inventory consists of contract work in progress related, in particular, to long-term construction contracts between Fiat S.p.A. and Treno
Alta Velocità – T.A.V. S.p.A. (merged into Rete Ferroviaria Italiana S.p.A. from 31 December 2010) under which Fiat S.p.A. as general
contractor coordinates, organizes and manages the work.
Work in progress refers to activities carried out directly and is recognized through measurement of the total contract income on a
percentage completion basis, with the incremental portion of the work performed to date being recognized in the period. The cost-to-
cost method is used to determine the percentage of completion of a contract (by dividing the costs incurred by the total costs forecast
for the whole construction).
Any losses expected to be incurred on contracts are fully recognized in the income statement and as a reduction in contract work in
progress when they become known.
Any advances received from customers for services performed are presented as a reduction in inventory. If the value of advances
received exceeds inventory, any excess is recognized as advances under other debt.
Sales of receivables
Receivables sold in factoring transactions are derecognized if and only if the risks and rewards relating to ownership have been
substantially transferred to the buyer. Receivables sold with recourse and without recourse that do not satisfy this condition remain in
the statement of financial position, even if they have been legally sold; in such cases, a liability for the same amount is recognized for
advances received.
Assets held for sale
This item includes non-current assets (or assets included in disposal groups) whose carrying amount will be recovered principally
through a sale transaction rather than through continuing use. Assets held for sale (or disposal groups) are measured at the lower of
their carrying amount and fair value less disposal costs.
Employee benefits
Post-employment benefit plans
The Company provides pension plans and other post-employment benefit plans to its employees. Pension plans in which the Company
is obliged to participate under Italian law are defined contribution plans, while other post-employment benefit plans, in which the
Company’s participation is generally subject to collective bargaining agreements, are defined benefit plans. Costs associated with
payments to defined contribution plans are recognized in the income statement when incurred. Defined benefit plans are based on an
employee’s working life and on the salary or wage received by the employee over a predetermined period of service.
Until 31 December 2006, the leaving entitlement payable to employees of Group companies in Italy (Trattamento di Fine Rapporto or
“TFR”) qualified as a defined benefit plan. Legislation relating to TFR was amended by Law 296 of 27 December 2006 and subsequent
decrees and regulations issued in the first half of 2007. As a result of those changes, and specifically with regard to companies with 50
employees or more, TFR is only considered a defined benefit plan for benefits accrued prior to 1 January 2007 (and not yet paid out as
at the balance sheet date), while benefits accruing after that date are classified as defined contributions.
The Company’s obligation to fund defined benefit plans and the associated annual cost recognized in the income statement are
determined on an actuarial basis using the projected unit credit method. The portion of net cumulative actuarial gains and losses which
exceeds the greater of 10% of the present value of the defined benefit obligation and 10% of the fair value of the plan assets at the
end of the previous year is amortized over the average remaining service lives of employees (the “corridor approach”). The portion of
actuarial gains and losses that does not exceed this threshold is deferred.