Ford 2003 Annual Report Download - page 75

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2003 ANNUAL REPORT 73
NOTE 1. ACCOUNTING POLICIES
PRINCIPLES OF PRESENTATION AND CONSOLIDATION
We present our financial statements on two bases: 1) sector basis for Automotive and Financial Services and 2) consolidated
basis. We believe the additional information provided in the sector basis statements enable the reader to better understand the
operating performance, financial position, cash flow and liquidity of our two very different businesses.
Our financial statements include consolidated majority-owned subsidiaries. Effective July 1, 2003, our financial statements also
include consolidated variable interest entities (“VIEs”) of which we are the primary beneficiary (see Note 13). Affiliates that we
do not consolidate, but for which we have significant influence over operating and financial policies, are accounted for using
the equity method.
Prior period amounts in our sector financial statements, consolidated financial statements and notes have been reclassified to
reflect discontinued/held-for-sale operations. In addition, certain amounts previously disclosed in our press release and current
report on Form 8-K dated January 22, 2004 have been reclassified.
CASH AND CASH EQUIVALENTS
Cash and all highly liquid investments with a maturity of three months or less at the date of purchase, including short-term time
deposits and government agency and corporate obligations, are classified as Cash and cash equivalents.
USE OF ESTIMATES
The financial statements are prepared in conformity with generally accepted accounting principles in the United States.
Management is required to make estimates and assumptions that affect reported amounts and disclosures. Actual results could
differ from those assumptions. Estimates and assumptions are periodically reviewed and the effects of any material revisions are
reflected in the financial statements in the period that they are determined to be necessary.
REVENUE RECOGNITION — AUTOMOTIVE SECTOR
Sales are generally recorded when products are shipped to customers (primarily dealers) and ownership is transferred. Sales to
daily rental car companies with a guaranteed repurchase option are accounted for as operating leases. The lease revenue is
recognized over the term of the lease and a gain or loss on the remaining residual value is recognized when the vehicles are sold
at auction. The carrying value of these vehicles, included in other current assets, was $2.2 billion and $2.0 billion at December
31, 2003 and 2002, respectively.
Investment income generated from investments in marketable securities and other miscellaneous receivables is reported as
Interest income.
REVENUE RECOGNITION — FINANCIAL SERVICES SECTOR
Revenue from finance receivables, including interest, net of certain deferred loan origination costs that are included as a
reduction of financing revenue, is recognized over the term of the receivable using the interest method. Revenue from operating
leases, net of certain deferred origination costs, is recognized on a straight-line basis over the term of the lease. The accrual of
interest on loans is discontinued at the time the loan is impaired. Subsequent amounts of interest collected are recognized in
income only if full recovery of the remaining principal is probable. Interest supplements paid by the Automotive sector are
recognized over the term of the receivable or operating lease.
MARKETING INCENTIVES
Automotive marketing incentives, including customer and dealer cash payments and costs for special financing and leasing
programs (e.g., interest subsidies paid to the Financial Services sector), are recognized as revenue reductions and are accrued
at the later of the date the related vehicle sales are recorded or the date the incentive program is both approved and com-
municated. In general, the amount of interest or lease subsidies paid is the difference between the amounts offered to retail
customers and a market-based interest or lease rate. Costs for marketing incentives are based on assumptions regarding the
number of vehicles that will have a specific incentive applied against them.
Ford Motor Company and Subsidiaries
Notes to Financial Statements
FIN73_104 3/21/04 1:07 AM Page 73