Fiat Group - Consolidated Financial Statements and Notes - Fiat SpA

Revenue recognition
Revenue is recognised if it is probable that the economic benefits associated with a transaction will flow to the Group and the revenue
can be measured reliably. Revenues are stated net of discounts, allowances, settlement discounts and rebates, as well as costs for
sales incentive programs, determined on the basis of historical costs, country by country, and charged against profit for the period
in which the corresponding sales are recognised. The Group’s sales incentive programs include the granting of retail financing at
significant discount to market interest rates. The corresponding cost is recognised at the time of the initial sale.
Revenues from the sale of products are recognised when the risks and rewards of ownership of the goods are transferred to the
customer, the sales price is agreed or determinable and receipt of payment can be assumed: this corresponds generally to the date
when the vehicles are made available to non-group dealers, or the delivery date in the case of direct sales. New vehicle sales with a
buy-back commitment are not recognised at the time of delivery but are accounted for as operating leases when it is probable that
the vehicle will be bought back. More specifically, vehicles sold with a buy-back commitment are accounted for as Inventories. The
difference between the carrying amount (corresponding to the manufacturing cost) and the estimated resale value (net of reconditioning
costs) at the end of the buy-back period is recognised on income statement on a straight-line basis over the contract term. The initial
sale price received is recognised in liabilities as a down payment. The difference between the initial sale price and the buy-back price
is recognised as rental revenue on a straight-line basis over the term of the operating lease. The proceeds from the sale of such assets
are recognised as Revenues.
Revenues from services and from construction contracts are recognised by reference to the stage of completion.
Revenues also include lease rentals and interest income from financial services companies.
Cost of sales
Cost of sales comprises the manufacturing cost of products and the acquisition cost of purchased merchandise which have been
sold. It includes all directly attributable material and production costs and all production overheads. These include the depreciation of
property, plant and equipment and the amortisation of intangible assets relating to production and write-downs of inventories. Cost of
sales also includes freight and insurance costs relating to deliveries to dealers and agency fees in the case of direct sales.
Cost of sales also includes provisions made to cover the estimated cost of product warranties at the time of sale to dealer networks or
to the end customer. Revenues from the sale of extended warranties and maintenance contracts are recognised over the period during
which the service is provided.
Expenses which are directly attributable to the financial services businesses, including the interest expense related to the financing of
financial services businesses as a whole and charges for risk provisions and write-downs, are reported in cost of sales.
Research and development costs
This item includes research costs, development costs not eligible for capitalisation and the amortisation and any impairment losses of
development costs recognised as assets in accordance with IAS 38.
Government grants
Government grants are recognised in the financial statements when there is reasonable assurance that the company concerned will
comply with the conditions for receiving such grants and that the grants themselves will be received. Government grants are recognised
as income over the periods necessary to match them with the related costs which they are intended to offset.
The benefit of a government loan at a below-market rate of interest is treated as a government grant. The benefit of the below-market
rate of interest is measured as the difference between the initial carrying amount of the loan (fair value plus transaction costs) and the
proceeds received, and is accounted for in accordance with the policies already used for the recognition of government grants.
149
Consolidated
Financial Statements
at 31 December 2011