Ford 2009 Annual Report Download - page 91

Notes to the Financial Statements
Ford Motor Company | 2009 Annual Report 89
NOTE 2. SUMMARY OF ACCOUNTING POLICIES (Continued)
Marketing Incentives and Interest Supplements
Marketing incentives generally are recognized by the Automotive sector as revenue reductions in Automotive sales.
These include customer and dealer cash payments and costs for special financing and leasing programs paid to the
Financial Services sector. The revenue reductions are accrued at the later of the date the related vehicle sales to the
dealers are recorded or the date the incentive program is both approved and communicated. We generally estimate these
accruals using marketing programs that are approved as of the balance sheet date and are expected to be effective at the
beginning of the subsequent period. The Financial Services sector identifies payments for special financing and leasing
programs as interest supplements or other support costs and recognizes them consistent with the earnings process of the
underlying receivable or operating lease.
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 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 being issued to our suppliers, are negotiated at
arms length and do not involve volume guarantees to either party. 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. When we retain the
risks and rewards of ownership, we account for the raw material as Inventory on our balance sheet.
Government Grants and Loan Incentives
From time to time, we receive grants and loan incentives from domestic and foreign governments. Grants are
recorded in the financial statements in accordance with their purpose, either as a reduction of expenses or a reduction of
the cost of the capital investment. When recorded as a reduction of expense, grants are recorded as a reduction in
Automotive cost of sales. The benefit of grants and loan incentives are recorded when performance is complete and all
conditions as specified in the agreement are fulfilled.
Selected Other Costs
Freight, engineering, and research and development costs are included in Automotive cost of sales; advertising costs
are included in Selling, administrative and other expenses. Freight costs on goods shipped and advertising costs are
expensed as incurred. Engineering, research and development costs are expensed as incurred when performed
internally or performed by a supplier when reimbursement is guaranteed. Engineering, research and development, and
advertising expenses were as follows (in billions):
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