Ford 2011 Annual Report Download - page 98

Notes to the Financial Statements
96 Ford Motor Company | 2011 Annual Report
NOTE 2. SUMMARY OF ACCOUNTING POLICIES (Continued)
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 reported in Accumulated
other comprehensive income/(loss). Upon sale or liquidation of an investment in a foreign subsidiary, the accumulated
amount of translation adjustments related to that entity is reclassified to net income as part of the recognized gain or loss
on the investment.
Increases/(Decreases) in Accumulated other comprehensive income/(loss) resulting from translation adjustments for
the years ended December 31 were as follows (in millions):
Beginning of year: foreign currency translation
Adjustments due to translation of net assets of foreign subsidiaries
Deferred translation (gains)/losses reclassified to net income (a)
Total translation adjustments (net of taxes)
End of year: foreign currency translation
2011
$(665)
(697)
(21)
(718)
$ (1,383)
2010
$1,568
(497)
(1,736)
(2,233)
$(665)
2009
$ (667)
1,951
284
2,235
$ 1,568
______
(a) The adjustment for 2010 primarily relates to the sale of Volvo.
Gains or losses arising from transactions denominated in currencies other than the affiliate's functional currency, 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 are reported in Automotive cost of sales and Selling, administrative and
other expenses. The pre-tax gain/(loss) of this activity for 2011, 2010, and 2009 was $4 million, $56 million, and
$(768) million, respectively.
Trade Receivables
Trade receivables, recorded on our consolidated balance sheet in Other receivables, net, consist primarily of
Automotive sector receivables for vehicles, parts, and accessories. Trade receivables are initially recorded at the
transaction amount. We record an allowance for doubtful accounts representing our estimate of the probable losses
inherent in trade receivables. At every reporting period, we assess the adequacy of our allowance for doubtful accounts
taking into consideration recoveries received during that period. Additions to the allowance for doubtful accounts are
made by recording charges to bad debt expense reported in Automotive cost of sales on our statement of operations.
Receivables are charged to the allowance for doubtful accounts when an account is deemed to be uncollectible.
Revenue Recognition — Automotive Sector
Automotive revenue is generated primarily by sales of vehicles, parts and accessories. Revenue is recorded when all
risks and rewards of ownership are transferred to our customers (generally dealers and distributors). For the majority of
our sales, this occurs when products are shipped from our manufacturing facilities. When vehicles are shipped to
customers or vehicle modifiers on consignment, revenue is recognized when the vehicle is sold to the ultimate
customer. When we give our dealers the right to return eligible parts for credit, we reduce the related revenue for
expected returns.
We sell vehicles to daily rental car companies subject to guaranteed repurchase options. These vehicles are
accounted for as operating leases. At the time of sale, the proceeds are recorded as deferred revenue in Accrued
liabilities and deferred revenue. The difference between the proceeds and the guaranteed repurchase amount is
recognized in Automotive revenues over an average term of eight months, using a straight-line method. The cost of the
vehicles is recorded in Net investment in operating leases and the difference between the cost of the vehicle and the
estimated auction value is depreciated in Automotive cost of sales over the term of the lease. Any difference between the
estimated auction value and the auction sale proceeds is recognized in Automotive revenues at the time the vehicle is
sold at auction. At December 31, 2011 and 2010, we recorded $1.5 billion and $1.4 billion as deferred revenue,
respectively. See Note 8 for additional information.
Income generated from cash and cash equivalents and investments in marketable securities is reported in Automotive
interest income and other non-operating income/(expense), net.