Chrysler 2014 Annual Report Download - page 210

208 2014 | ANNUAL REPORT
Consolidated
Financial Statements
Notes to the Consolidated
Financial Statements
As required by paragraph 31 of IAS 32, the initial carrying amount of a compound financial instrument is allocated to
its equity and liability components. The equity component is assigned the residual amount after deducting the amount
separately determined for the liability component from the fair value of the instrument as a whole. The value of any
derivative features embedded in the compound financial instrument other than the equity component is included in the
liability component. Therefore, the financial liability for the coupon payments will be initially recognized at its fair value.
The derivative related to the early settlement conversion features defined in the Mandatory Convertible Securities
will be bifurcated from the financial liability for the coupon payments and will be accounted for at fair value through
profit and loss. Subsequently, the financial liability related to the coupon payments will be accounted for at amortized
cost using the effective interest method. The financial liabilities related to the embedded derivative features will be
remeasured to their fair value at each reporting date with the remeasurement gains or losses being recorded in the
Consolidated statement of income. The residual amount of the proceeds received from the issuance of the Mandatory
Convertible Securities will be allocated to share reserves in Equity. The amount of proceeds recorded in equity will not
be remeasured subsequently.
Under IAS 32, transaction costs that relate to the issue of a compound financial instrument are allocated to the liability
and equity components of the instrument in proportion to the allocation of proceeds. The portion allocated to the
equity component should be accounted for as a deduction from equity to the extent that they are incremental costs
directly attributable to the equity transaction. The portion allocated to the liability component (including third party
costs and creditor fees) are deducted from the liability component balance, are accounted for as a debt discount and
are amortized over the life of the coupon payments using the effective interest method.
Net proceeds of U.S.$2,814 million (€2,245 million), consisting of gross proceeds of U.S.$2,875 million (€2,293
million) less total transaction costs of U.S.$61 million (€48 million) directly related to the issuance, were received in
connection with the issuance of the Mandatory Convertible Securities. The fair value amount determined for the liability
component at issuance was U.S.$419 million (€335 million) which was calculated as the present value of the coupon
payments due, less allocated transaction costs of U.S.$9 million (€7 million) that are accounted for as a debt discount
(Note 27). The remaining net proceeds of U.S.$2,395 million (€1,910 million) (including allocated transaction costs of
U.S.$52 million (€41 million) was recognized within equity reserves.
Other reserves
Other reserves mainly include:
the legal reserve of €10,816 million at December 31, 2014 (€6,699 million at December 31, 2013) that were
determined in accordance to the Dutch law and mainly refers to development costs capitalized by subsidiaries and
their earnings subject to certain restrictions to distributions to the parent company. The legal reserve also includes
the reserve for the equity component of the Mandatory Convertible Securities of €1,910 million at December 31,
2014. Pursuant to Dutch law, limitations exist relating to the distribution of shareholders’ equity up to the total
amount of the legal reserve;
the capital reserves amounting to €3,472 million at December 31, 2014 and consisting mainly of the effects of the
Merger resulting in a different par value of FCA common shares (€0.01 each) as compared to Fiat S.p.A. ordinary
shares (€3.58 each) where the consequent difference between the share capital before and after the Merger was
recognized to increase the capital reserves;
retained earnings, that after separation of the legal reserve, are negative by €1,458 million;
the profit attributable to owners of the parent of €568 million at December 31, 2014 (a profit of €904 million for the
year ended December 31, 2013);