annual report - FIAT SpA

fair value do not have any effect on the initial measurement. In accordance with the transitional provisions of IFRS 2,
the Group applied the Standard to all stock options granted after 7 November 2002 and not yet vested at 1 January
2005, the effective date of the Standard. Detailed information is provided in respect of all stock options granted on or
prior to 7 November 2002.
Provisions
The Group records provisions when it has an obligation, legal or constructive, to a third party, when it is probable that
an outflow of Group resources will be required to satisfy the obligation and when a reliable estimate of the amount can
be made.
Changes in estimates are reflected in the income statement in the period in which the change occurs.
Treasury shares
Treasury shares are presented as a deduction from equity. The original cost of treasury shares and the proceeds of
any subsequent sale are presented as movements in equity.
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 assets in Inventories if the sale originates from the
Fiat Group Automobiles business (agreements with normally a short-term buy-back commitment); and are accounted
for in Property, plant and equipment, if the sale originates from the Commercial Vehicles business (agreements with
normally a long-term buy-back commitment). The difference between the carrying value (corresponding to the
manufacturing cost) and the estimated resale value (net of refurbishing costs) at the end of the buy-back period is
depreciated on a straight-line basis over the same period. The initial sale price received is recognised as an advance
payment (liability). 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. Assets sold under a buy-back commitment that are
initially recognised in Property, plant and equipment are reclassified to Inventories at the end of the agreement term if
they are held for sale. 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.
Fiat Group Consolidated Financial Statements at 31 December 2010 120