Chrysler 2013 Annual Report Download - page 278

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Fiat S.p.A. Statutory
Financial Statements
at 31 December 2013
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 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.