General Motors 2010 Annual Report Download - page 151

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Valuation of Cost and Equity Method Investments
When events and circumstances warrant, investments accounted for under the cost or equity method of accounting are evaluated for
impairment. An impairment charge is recorded whenever a decline in value of an investment below its carrying amount is determined
to be other than temporary. In determining if a decline is other than temporary, factors such as the length of time and extent to which
the fair value of the investment has been less than the carrying amount of the investment, the near-term and longer-term operating and
financial prospects of the affiliate and the intent and ability to hold the investment for a period of time sufficient to allow for any
anticipated recovery are considered. Impairment charges related to equity method investments are recorded in Equity income, net of
tax. Impairment charges related to cost method investments are recorded in Interest income and other non-operating income, net.
Equipment on Operating Leases, net
Equipment on operating leases, net, including leased vehicles within Total GM Financial Assets, is reported at cost, less
accumulated depreciation and net of origination fees or costs. Estimated income from operating lease assets, which includes lease
origination fees, net of lease origination costs, is recorded as operating lease revenue on a straight-line basis over the term of the lease
agreement. Depreciation of vehicles is provided on a straight-line basis to an estimated residual value over the term of the lease
agreement.
We have and Old GM had significant investments in vehicles in operating lease portfolios, which are comprised of vehicle leases to
retail customers with lease terms of up to 60 months and vehicles leased to rental car companies with lease terms that average nine
months or less. We are and Old GM was exposed to changes in the residual values of those assets. For impairment purposes, the
residual values represent estimates of the values of the assets at the end of the lease contracts and are determined based on the lower
of forecasted or current auction proceeds in the U.S. and Canada and forecasted auction proceeds outside of the U.S. and Canada
when there is a reliable basis to make such a determination. Realization of the residual values is dependent on the future ability to
market the vehicles under the prevailing market conditions. The adequacy of the estimate of the residual value is evaluated over the
life of the lease and adjustments may be made to the extent the expected value of the vehicle at lease termination changes.
Adjustments may be in the form of revisions to the depreciation rate or recognition of an impairment charge. Impairment is
determined to exist if the undiscounted expected future cash flows, which include estimated residual values, are lower than the
carrying amount of the asset. If the carrying amount is considered impaired, an impairment charge is recorded for the amount by
which the carrying amount exceeds the fair value. Fair value is determined primarily using the anticipated cash flows, including
estimated residual values.
In our automotive operations, when a leased vehicle is returned the asset is reclassified from Equipment on operating leases, net to
Inventories at the lower of cost or estimated selling price, less costs to sell. In our automotive finance operations, when a leased
vehicle is returned or repossessed the asset is recorded at the lower of cost or estimated selling price, less costs to sell, and upon
disposition a gain or loss is recorded for any difference between the net book value of the lease and the proceeds from the disposition
of the asset.
Impairment charges related to Equipment on operating leases, net are recorded in Automotive cost of sales or GM Financial
operating expenses and other. Refer to Notes 26 and 32 for additional information on impairments and operating lease arrangements
with Ally Financial.
Foreign Currency Transactions and Translation
The assets and liabilities of foreign subsidiaries, that use the local currency as their functional currency, are translated to U.S.
Dollars based on the current exchange rate prevailing at each balance sheet date and any resulting translation adjustments are included
in Accumulated other comprehensive income (loss). The assets and liabilities of foreign subsidiaries whose local currency is not their
functional currency are remeasured from their local currency to their functional currency, and then translated to U.S. Dollars.
Revenues and expenses are translated into U.S. Dollars using the average exchange rates prevailing for each period presented.
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