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NOTE 2. SUMMARY OF ACCOUNTING POLICIES (Continued)
raw material and the income from the subsequent sale to the supplier in Automotive cost of sales. When we retain the
risks and rewards of ownership, we account for the raw material as Inventory on our balance sheet until the resulting
vehicle is sold.
Warranty and Extended Service Plans
Estimated warranty costs and additional service actions are accrued for at the time the vehicle is sold to a dealer,
including costs for basic warranty coverage on vehicles sold, product recalls, and other customer service actions. Fees or
premiums for the issuance of extended service plans are recognized in income over the contract period in proportion to
the costs expected to be incurred in performing services under the contract.
Government Grants and Loan Incentives
From time to time, we receive grants and loan incentives from domestic and foreign governments. They are recorded
in the financial statements as dictated by the grant agreement, either as a reduction of expenses or a reduction of the cost
of the capital investment. The benefit of grants and loan incentives is recorded when performance is complete and all
conditions as specified in the agreement are fulfilled. When recorded as a reduction of expense, grants and loan
incentives are recorded as a reduction in Automotive cost of sales.
Foreign Currency Translation
The assets and liabilities of foreign subsidiaries using the local currency as their functional currency are translated to
U.S. dollars using end-of-period exchange rates and any resulting translation adjustments are contained in Accumulated
other comprehensive income/(loss). The net translation adjustments for 2007 and 2006 were an increase in net assets
and Accumulated other comprehensive income/(loss) of $1.8 billion and $2.6 billion (net of tax of $0 for 2007 and
$3 million benefit for 2006), respectively. In 2005, the net translation adjustment was a decrease in net assets and
Accumulated other comprehensive income/(loss) of $3.7 billion (net of tax of $299 million). This net translation
adjustment also reflects amounts transferred to net income as a result of the sale or liquidation of an entity, resulting in a
gain of $116 million (primarily from the sale of Hertz) in 2005.
Also included in Automotive cost of sales, Automotive interest income and other non-operating income/(expense), net,
and Financial Services revenues are gains or losses arising from transactions denominated in currencies other than the
functional currency of the locations, the effect of remeasuring assets and liabilities of foreign subsidiaries using U.S.
dollars as their functional currency, and the results of our foreign currency hedging activities. For additional discussion of
hedging activities, see Note 23. The net after-tax income effects of these adjustments were a gain of $217 million in
2007, a loss of $17 million in 2006, and a gain of $621 million in 2005.
Presentation of Sales and Sales-Related Taxes
We collect and remit taxes assessed by different governmental authorities that are both imposed on and concurrent
with a revenue-producing transaction between us and our customers. These taxes may include, but are not limited to,
sales, use, value-added, and some excise taxes. We report the collection of these taxes on a net basis (excluded from
revenues).
Selected Other Costs
Freight, engineering and research and development costs are included in Automotive cost of sales; advertising costs
are included in Selling, administrative and other expenses. Engineering, research and development, and advertising
costs are expensed as incurred and were as follows (in billions):
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Notes to the Financial Statements
Ford Motor Company | 2007 Annual Report 63