Ford 2014 Annual Report Download - page 120

FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-Lived Asset Impairment
We test long-lived asset groups for recoverability at the operating segment level when changes in circumstances
indicate the carrying value may not be recoverable. Events that trigger a test for recoverability include material adverse
changes in projected revenues and expenses, significant underperformance relative to historical and projected future
operating results, significant negative industry or economic trends, and a significant adverse change in the manner in
which an asset group is used or in its physical condition. When a triggering event occurs, a test for recoverability is
performed, comparing projected undiscounted future cash flows to the carrying value of the asset group. If the test for
recoverability identifies a possible impairment, the asset group’s fair value is measured relying primarily on a discounted
cash flow methodology. An impairment charge is recognized for the amount by which the carrying value of the asset
group exceeds its estimated fair value. When an impairment loss is recognized for assets to be held and used, the
adjusted carrying amount of those assets is depreciated over their remaining useful life.
Revenue Recognition — Automotive Sector
Automotive revenue is generated primarily by sales of vehicles, parts, and accessories. Revenue is recorded when
all risks and rewards of ownership are transferred to our customers (generally dealers and distributors). For the majority
of our sales, this occurs when products are shipped from our manufacturing facilities. When we give our dealers the right
to return eligible parts for credit, we reduce the related revenue for expected returns.
We sell vehicles to fleet customers, primarily daily rental car companies, subject to guaranteed repurchase
options. These vehicles are accounted for as operating leases. At the time of sale, the proceeds are recorded as
deferred revenue in Other liabilities and deferred revenue. The difference between the proceeds and the guaranteed
repurchase amount is recognized in Automotive revenues over the term of the lease using a straight line method. On
average, the terms of these leases are 11 months. The cost of the vehicle is recorded in Net investment in operating
leases and the difference between the cost of the vehicle and the estimated auction value is depreciated in Automotive
cost of sales over the term of the lease. Proceeds from the sale of the vehicle at auction are recognized in Automotive
revenues at the time of sale.
Revenue Recognition — Financial Services Sector
Financial Services revenue is generated primarily from interest on finance receivables (including direct financing
leases) and is recognized using the interest method, including the accretion of certain direct origination costs that are
deferred. Revenue from rental payments received on operating leases is recognized on a straight-line basis over the term
of the lease. The accrual of interest on finance receivables and revenue on operating leases is discontinued at the time a
receivable or account is determined to be uncollectible.
Retail and Lease Incentives
We offer special retail financing and lease incentives to dealers’ customers who choose to finance or lease Ford or
Lincoln brand vehicles from Ford Credit. The estimated cost for these incentives is recorded as a revenue reduction to
Automotive revenues when the vehicle is sold to the dealer. See Note 1 for additional information regarding transactions
between Automotive and Financial Services sectors. We pay the discounted value of the incentive directly to Ford Credit
on behalf of the retail customer upon acquisition of the retail finance or lease contract to compensate Ford Credit for the
lower interest or lease rates provided to the retail customer. The Financial Services sector recognized revenue of
$1.4 billion, $1.5 billion, and $1.6 billion in 2014, 2013, and 2012, respectively, for special financing consistent with the
earnings process of the underlying receivable, and lower depreciation of $1.3 billion, $946 million, and $850 million in
2014, 2013 and 2012, respectively, related to leasing programs.
Sales and Marketing Incentives
Sales and marketing incentives generally are recognized by the Automotive sector as revenue reductions in
Automotive revenues. The incentives generally take the form of cash payments to dealers and dealers’ customers. The
reduction to revenue is accrued at the later of the date the related vehicle is sold or the date the incentive program is both
approved and communicated. We generally estimate these accruals using incentive programs that are approved as of the
balance sheet date and are expected to be effective at the beginning of the subsequent period.
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