Ford 2013 Annual Report Download - page 81

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Ford Motor Company | 2013 Annual Report 79
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF ACCOUNTING POLICIES (Continued)
Long-Lived Asset Impairment
We test long-lived asset groups for recoverability, at the operating segment level when changes in circumstances
indicate the carrying value may not be recoverable. Events that trigger a test for recoverability include material adverse
changes in projected revenues and expenses, significant underperformance relative to historical and projected future
operating results, significant negative industry or economic trends, and a significant adverse change in the manner in
which an asset group is used or in its physical condition. When a triggering event occurs, a test for recoverability is
performed, comparing projected undiscounted future cash flows to the carrying value of the asset group. If the test for
recoverability identifies a possible impairment, the asset group’s fair value is measured relying primarily on a discounted
cash flow methodology. An impairment charge is recognized for the amount by which the carrying value of the asset
group exceeds its estimated fair value. When an impairment loss is recognized for assets to be held and used, the
adjusted carrying amount of those assets is depreciated over their remaining useful life.
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 Other 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.
Revenue Recognition — Financial Services Sector
Financial Services revenue is generated primarily from interest on finance receivables (including direct financing
leases) and is recognized using the interest method, including the accretion of certain direct origination costs that are
deferred. Revenue from rental payments received on operating leases is recognized on a straight-line basis over the term
of the lease. The accrual of interest on finance receivables and revenue on operating leases is discontinued at the earlier
of the time a receivable or account is determined to be uncollectible, at bankruptcy status notification, or greater than 120
days past due.
Retail and Lease Incentives
We offer special retail financing and lease incentives to dealers’ customers who choose to finance or lease Ford- or
Lincoln-brand vehicles from Ford Credit. The estimated cost for these incentives is recorded as a revenue reduction to
Automotive revenues when the vehicle is sold to the dealer. See Note 1 for additional information regarding transactions
between Automotive and Financial Services sectors. We pay the discounted value of the incentive directly to Ford Credit
on behalf of the retail customer upon acquisition of the retail finance or lease contract to compensate Ford Credit for the
lower interest or lease rates offered to the retail customer. The Financial Services sector recognized revenue of
$1.5 billion, $1.6 billion, and $2.1 billion in 2013, 2012, and 2011, respectively, for special financing consistent with the
earnings process of the underlying receivable, and lower depreciation of $946 million, $850 million, and $889 million in
2013, 2012 and 2011, respectively, related to leasing programs.
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