Ford 2012 Annual Report Download - page 78

76 Ford Motor Company | 2012 Annual Report
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF ACCOUNTING POLICIES
For each accounting topic that is addressed in its own footnote, the description of the accounting policy may be found
in the related footnote. The remaining accounting policies are described below.
Use of Estimates
The preparation of financial statements requires us to make estimates and assumptions that affect our results during
the periods reported. Estimates are used to account for certain items such as marketing accruals, warranty costs,
employee benefit programs, etc. Estimates are based on assumptions that we believe are reasonable under the
circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ.
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 Other
comprehensive income/(loss). Upon sale or upon complete or substantially complete 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.
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 2012, 2011, and 2010 was $(426) million, $4 million, and
$56 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 initially are 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. 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. Proceeds from the sale of
the vehicle at auction are recognized in Automotive revenues at the time of sale. At December 31, 2012 and 2011, we
recorded $1.5 billion and $1.5 billion as deferred revenue, respectively.