Ford 2014 Annual Report Download - page 121

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Supplier Price Adjustments
We frequently negotiate price adjustments with our suppliers throughout a production cycle, even after receiving
production material. These price adjustments relate to changes in design specifications or other commercial terms such
as economics, productivity, and competitive pricing. We recognize price adjustments when we reach final agreement with
our suppliers. In general, we avoid direct price changes in consideration of future business; however, when these occur,
our policy is to defer the financial statement impact of any such price change given explicitly in consideration of future
business where guaranteed volumes are specified.
Raw Material Arrangements
We may, at times, negotiate prices for and facilitate the purchase of raw materials on behalf of our suppliers. These
raw material arrangements, which take place independently of any purchase orders issued to our suppliers, are
negotiated at arms’ length and do not involve volume guarantees. When we pass the risks and rewards of ownership to
our suppliers, including inventory risk, market price risk, and credit risk for the raw material, we record both the cost of the
raw material and the income from the subsequent sale to the supplier in Automotive cost of sales.
Government Incentives
We receive incentives from U.S. and non-U.S. governmental entities in the form of tax rebates or credits, grants, and
loans. Government incentives are recorded in the financial statements in accordance with their purpose, either as a
reduction of expense or a reduction of the cost of the capital investment. A discount is calculated on government loans
with a below-market interest rate. The benefit of these incentives generally is recorded when all conditions as specified in
the agreement are fulfilled.
Selected Other Costs
Engineering, 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 costs are expensed as
incurred when performed internally or when performed by a supplier if we guarantee reimbursement. Advertising costs
are expensed as incurred. Engineering, research, development, and advertising expenses for the years ended
December 31 were as follows (in billions):
2014 2013 2012
Engineering, research, and development $ 6.9 $ 6.4 $ 5.5
Advertising 4.3 4.4 4.0
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).
FS-15