General Motors 2015 Annual Report Download - page 67

Table of Contents
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The estimated costs related to policy and product warranties are accrued at the time products are sold and are charged to Automotive cost of sales. These
estimates are established using historical information on the nature, frequency and average cost of claims of each vehicle line or each model year of the
vehicle line and assumptions about future activity and events. Revisions are made when necessary based on changes in these factors. The estimated costs
related to recall campaigns are accrued at the time of vehicle sale in GMNA and when probable and reasonably estimable in other geographical regions.
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The liability method is used in accounting for income taxes. Deferred tax assets and liabilities are recorded for temporary differences between the tax basis
of assets and liabilities and their reported amounts in the consolidated financial statements using the statutory tax rates in effect for the year in which the
differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recorded in the results of operations in the period
that includes the enactment date under the law.
Deferred income tax assets are evaluated quarterly to determine if valuation allowances are required or should be adjusted. We establish valuation
allowances for deferred tax assets based on a more likely than not standard. The ability to realize deferred tax assets depends on the ability to generate
sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The assessment
regarding whether a valuation allowance is required or should be adjusted also considers all available positive and negative evidence factors. It is difficult to
conclude a valuation allowance is not required when there is significant objective and verifiable negative evidence, such as cumulative losses in recent years.
We utilize a rolling three years of actual and current year results as the primary measure of cumulative losses in recent years.
Income tax expense (benefit) for the year is allocated between continuing operations and other categories of income such as Other comprehensive income
(loss). In periods in which there is a pre-tax loss from continuing operations and pre-tax income in another income category, the tax benefit allocated to
continuing operations is determined by taking into account the pre-tax income of other categories.
We record uncertain tax positions on the basis of a two-step process whereby: (1) we determine whether it is more likely than not that the tax positions will
be sustained based on the technical merits of the position; and (2) for those tax positions that meet the more likely than not recognition, we recognize the
largest amount of tax benefit that is greater than 50% likely to be realized upon ultimate settlement with the related tax authority. We record interest and
penalties on uncertain tax positions in Income tax expense (benefit).
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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 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.
Gains and losses arising from foreign currency transactions and the effects of remeasurements discussed in the preceding paragraph are recorded in
Automotive cost of sales and GM Financial interest, operating and other expenses unless related to Automotive debt, which are recorded in Interest income
and other non-operating income, net. Foreign currency transaction and remeasurement losses were $829 million, $437 million and $350 million in the years
ended December 31, 2015, 2014 and 2013.
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GM Financial recognizes all of its derivative financial instruments as either assets or liabilities at fair value. The accounting for changes in the fair value of
each derivative financial instrument depends on whether it has been designated and qualifies as an accounting hedge, as well as the type of hedging
relationship identified. GM Financial does not use derivative instruments for trading or speculative purposes.
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