annual report - FIAT SpA

(tangible and intangible assets), the residual values of vehicles leased out under operating lease arrangements or
sold with buy-back clauses, pension funds and other post-employment benefits, and deferred tax assets.
The following are the critical judgements and the key assumptions concerning the future, that management has made
in the process of applying the Group accounting policies and that have the most significant effect on the amounts
recognised in the consolidated financial statements or that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year.
Allowance for doubtful accounts
The allowance for doubtful accounts reflects management’s estimate of losses inherent in the wholesale and retail
credit portfolio. This allowance is based on the Group’s estimate of the losses to be incurred, which derives from past
experience with similar receivables, current and historical past due amounts, dealer termination rates, write-offs and
collections, the careful monitoring of portfolio credit quality and current and projected economic and market conditions.
Should the present economic and financial situation persist or even worsen, this could lead to a further deterioration in
the financial situation of the Group’s debtors compared to that already taken into consideration in calculating the
allowances recognised in the financial statements.
Allowance for obsolete and slow-moving inventory
The allowance for obsolete and slow-moving inventory reflects management’s estimate of the loss in value expected
by the Group, and has been determined on the basis of past experience and historical and expected future trends in
the used vehicle market. A worsening of the economic and financial situation could cause a further deterioration in
conditions in the used vehicle market compared to that already taken into consideration in calculating the allowances
recognised in the financial statements.
Recoverability of non-current assets (including goodwill)
Non-current assets include property, plant and equipment, intangible assets (including goodwill), investments and
other financial assets. Management reviews the carrying value of non-current assets held and used and that of assets
to be disposed of when events and circumstances warrant such a review. Management performs this review using
estimates of future cash flows from the use or disposal of the asset and a suitable discount rate in order to calculate
present value. If the carrying amount of a non-current asset is considered impaired, the Group records an impairment
loss for the amount by which the carrying amount of the asset exceeds its estimated recoverable amount from use or
disposal determined by reference to its most recent business forecasts.
In view of the present economic and financial situation, the Fiat Group has the following considerations in respect of
its future prospects:
� In the current situation, when preparing figures for the consolidated financial statements for the year ended
31 December 2010 and more specifically when carrying out impairment testing of tangible and intangible
assets, the various sectors of the Group have taken into account their performance for 2011 as forecast in the
budgets of the post-Demerger Fiat Group and the Fiat Industrial Group, with assumptions and results
consistent with the statements made in the section Significant events subsequent to the year end and outlook.
In addition, for subsequent years they have taken into account the forecasts and targets included in the Fiat
Group’s 2010-2014 Strategic Plan presented to the financial community on 21 April 2010. These forecasts did
not indicate the need to recognise any significant impairment losses.
� In addition, should the assumptions underlying the forecast deteriorate further the following is noted:
The Group’s tangible assets and intangible assets with a finite useful life (which essentially regard
development costs) relate to models or products having a high technological content in line with the latest
environmental laws and regulations, which consequently renders them competitive in the present economic
situation, especially in the more mature economies in which particular attention is placed on the ecosustainability
of those types of products. As a result, therefore, despite the fact that the automotive sector is
one of the markets most affected by the crisis in the immediate term, it is considered highly probable that the
life cycle of these products can be lengthened to extend over the period of time involved in a slower
economic recovery, in this way allowing the Group to achieve sufficient earnings flows to cover the
investments, albeit over a longer timescale.
Around 61% of capitalised goodwill relates to the CNH business and around 27% to Ferrari. In the case of
the goodwill relating to the CNH business (€1,794 million at 31 December 2010), which has been classified
as Discontinued Operations since it relates to businesses included in the Fiat Industrial Group, detailed
analyses using various methodologies were carried out to test its recoverability; the underlying
considerations are described in Note 14. As concerns Ferrari, the exclusivity of the business, its historical
profitability and its future earnings prospects indicate that the carrying amount will continue to be
recoverable, even in the event of economic and market conditions which remain difficult.
Fiat Group Consolidated Financial Statements at 31 December 2010 122