General Motors 2015 Annual Report Download - page 62

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Table of Contents


guaranteed repurchase amount. The difference between the cost of the vehicle and estimated residual value is depreciated on a straight-line basis over the
estimated term of the lease.

Finance charge income earned on receivables is recognized using the effective interest method for retail finance receivables and accrual method for
commercial finance receivables. Fees and commissions (including incentive payments) received and direct costs of originating loans are deferred and
amortized over the term of the related finance receivables using the effective interest method and are removed from the consolidated balance sheets when the
related finance receivables are sold, charged off or paid in full. Accrual of finance charge income on retail finance receivables is generally suspended on
accounts that are more than 60 days delinquent, accounts in bankruptcy and accounts in repossession. Payments received on nonaccrual loans are first
applied to any fees due, then to any interest due and then any remaining amounts are recorded to principal. Interest accrual generally resumes once an
account has received payments bringing the delinquency to less than 60 days past due. Accrual of finance charge income on commercial finance receivables
is generally suspended on accounts that are more than 90 days delinquent, upon receipt of a bankruptcy notice from a borrower, or where reasonable doubt
exists about the full collectability of contractually agreed upon principal and interest. Payments received on nonaccrual loans are first applied to principal.
Interest accrual resumes once an account has received payments bringing the account fully current and collection of contractual principal and interest is
reasonably assured (including amounts previously charged off).
Income from operating lease assets, which includes lease origination fees, net of lease origination costs and incentives, is recorded as operating lease
revenue on a straight-line basis over the term of the lease agreement.

Advertising and promotion expenditures, which are expensed as incurred in Automotive selling, general and administrative expense, were $5.1 billion,
$5.2 billion and $5.5 billion in the years ended December 31, 2015, 2014 and 2013.

Research and development expenditures, which are expensed as incurred in Automotive cost of sales, were $7.5 billion, $7.4 billion and $7.2 billion in the
years ended December 31, 2015, 2014 and 2013.

Cash equivalents are defined as short-term, highly-liquid investments with original maturities of 90 days or less.

A three-level valuation hierarchy, based upon observable and unobservable inputs, is used for fair value measurements. Observable inputs reflect market
data obtained from independent sources, while unobservable inputs reflect market assumptions based on the best evidence available. These two types of
inputs create the following fair value hierarchy:
• Level 1 - Quoted prices for identical instruments in active markets;
• Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and
model-derived valuations whose significant inputs are observable; and
• Level 3 - Instruments whose significant inputs are unobservable.
Financial instruments are transferred in and/or out of Level 1, 2 or 3 at the beginning of the accounting period in which there is a change in the valuation
inputs.

We classify marketable securities as available-for-sale or trading. Various factors, including turnover of holdings and investment guidelines, are considered
in determining the classification of securities. Available-for-sale securities are recorded at fair value with unrealized gains and losses recorded net of related
income taxes in Accumulated other comprehensive loss until realized.
58