Chrysler 2014 Annual Report Download - page 175

2014 | ANNUAL REPORT 173
Business combinations
As discussed below in the paragraph – Acquisition of the remaining ownership interest in FCA US, the consolidation of
FCA US was accounted for as a business combination achieved in stages using the acquisition method of accounting
required under IFRS 3. In accordance with the acquisition method, the Group remeasured its previously held equity
interest in FCA US at fair value. The acquired non-controlling interest in FCA US was also recognized at its acquisition
date fair value. Additionally, the Group recognized the acquired assets and assumed liabilities at their acquisition date
fair values, except for deferred income taxes and certain liabilities associated with employee benefits, which were
recorded according to other accounting guidance. These values were based on market participant assumptions,
which were based on market information available at the date of obtaining control and which affected the value at
which the assets, liabilities, non-controlling interests and goodwill were recognized as well as the amount of income
and expense for the period.
Share-based compensation
The Group accounts for share-based compensation plans in accordance with IFRS 2 - Share-based payments,
which requires measuring share-based compensation expense based on fair value. As described in Note 24, Fiat
had granted share-based payments for the years ended December 31, 2013 and 2012 to certain employees and
directors. There were no new Fiat share-based payments made for the year ended December 31, 2014. Also as
described in Note 24, FCA US had granted share-based payments for the years ended December 31, 2014, 2013
and 2012.
The fair value of Fiat share-based payments had been measured based on market prices of Fiat shares at the grant
date taking into account the terms and conditions upon which the instruments were granted. The fair value of FCA US
awards is measured by using a discounted cash flow methodology to estimate the price of the awards at the grant
date and subsequently for liability-classified awards at each balance sheet date, until they are settled.
For FCA US awards, since there are no publicly observable market prices for FCA US’s membership interests, the
fair value was determined contemporaneously with each measurement using a discounted cash flow methodology.
The Group uses this approach, which is based on projected cash flows, to estimate FCA US’s enterprise value. The
Group then deducts the fair value of FCA US’s outstanding interest bearing debt at the measurement date from the
enterprise value to arrive at the fair value of FCA US’s equity.
The significant assumptions used in the measurement of the fair value of these awards at each measurement date
include different assumptions. For example, the assumptions include four years of annual projections that reflect the
estimated after-tax cash flows a market participant would expect to generate from FCA US’s operating business, an
estimated after-tax weighted average cost of capital and projected worldwide factory shipments.
The assumptions noted above used in the contemporaneous estimation of fair value at each measurement date
have not changed significantly during the years ended December 31, 2014, 2013 and 2012 with the exception of the
weighted average cost of capital, which is directly influenced by external market conditions.
The Group updates the measurement of the fair value of these awards on a regular basis. It is therefore possible that
the amount of share-based payments reserve and liabilities for share-based payments may vary as the result of a
significant change in the assumptions mentioned above.