Mercedes 1998 Annual Report Download - page 80

Revenue Recognition — Revenue is recognized when title
passes or services are rendered net of discounts, sales
incentives, customer bonuses and rebates granted. Sales under
which the Company conditionally guarantees the minimum
resale value of the product are accounted for as operating
leases with the related revenues and costs deferred at the time
of title passage. Revenue on long-term contracts is generally
recognized under the percentage-of-completion method based
upon contractual milestones or performance. Revenue from
finance receivables is recorded on the interest method.
Operating lease income is recorded when earned on a straight-
line basis.
The Group sells significant amounts of automotive retail and
wholesale receivables in transactions subject to limited credit
risk. The Group generally sells its receivables to a trust and
remains as servicer, for which it is paid a servicing fee.
Servicing fees are earned on a level-yield basis over the
remaining term of the related sold receivables. In a
subordinated capacity, the Group retains residual cash flows, a
limited interest in principal balances of the sold receivables
and certain cash deposits provided as credit enhancements for
investors. Gains and losses from the sales of finance
receivables are recognized in the period in which such sales
occur. In determining the gain or loss for each qualifying sale
of finance receivables, the investment in the sold receivable
pool is allocated between the portion sold and the portion
retained based upon their relative fair values.
Product-Related Expenses — Expenditures for advertising and
sales promotion and for other sales-related expenses are
charged to expense as incurred. Provisions for estimated costs
related to product warranty are made at the time the related
sale is recorded. Research and development costs are
expensed as incurred.
Earnings Per Share — Basic earnings per share is generally
calculated by dividing net income by the weighted average
number of shares outstanding. Diluted earnings per share
reflects the potential dilution that would occur if all securities
and other contracts to issue Ordinary Shares were exercised or
converted (see Note 31). Net income represents the earnings
of the Group after minority interests. Basic and diluted
earnings per Ordinary Share have been restated to reflect the
conversion of Daimler-Benz and Chrysler shares into
DaimlerChrysler Ordinary Shares (see Note 1) and the dilutive
effect resulting from the discount to market value at which the
Daimler-Benz Ordinary Shares were sold in the rights offering
(see Note 20).
Intangible Assets — Purchased intangible assets are valued at
acquisition cost and are amortized over their respective useful
lives (3 to 40 years). Goodwill derived from acquisitions is
capitalized and amortized over 3 to 40 years. The Group
periodically assesses the recoverability of its goodwill based
upon projected future cash flows. Intangible assets also include
intangible pension assets.
Property, Plant and Equipment — Property, plant and equipment
is valued at acquisition or manufacturing costs less accu-
mulated depreciation. Depreciation expense is recognized
either using the declining balance method until the straight-
line method yields larger expenses or the straight-line method.
Special tooling costs are capitalized and amortized over the
years that a model using that tooling is expected to be prod-
uced and within each year based on the units produced. The
costs of internally produced equipment and facilities includes
all direct costs and allocable manufacturing overhead. Costs of
the construction of certain long-term assets include capitalized
interest which is amortized over the estimated useful life of the
related asset. The following useful lives are assumed: buildings
- 17 to 50 years; site improvements - 8 to 20 years; technical
equipment and machinery - 3 to 30 years; and other equip-
ment, factory and office equipment - 2 to 15 years.
Leasing — The Group is a lessee of property, plant and
equipment and lessor of equipment, principally passenger cars
and commercial vehicles. All leases that meet certain specified
criteria intended to represent situations where the substantive
risks and rewards of ownership have been transferred to the
lessee are accounted for as capital leases. All other leases are
accounted for as operating leases. Equipment on operating
leases, where the Group is lessor, is valued at acquisition cost
and generally depreciated over the assets’ useful lives,
generally three to seven years, using the straight-line method.
Current Assets — Current assets represent the Group’s
inventories, receivables, securities and cash, including
amounts to be realized in excess of one year. In the accompany-
ing footnotes, the portion of assets and liabilities to be realized
and settled in excess of one year have been disclosed.
Marketable Securities and Investments — Securities are accounted
for at fair values, if readily determinable. Unrealized gains and
losses on trading securities, that is, securities bought
principally for the purposes of selling them in the near term,
are included in income. Unrealized gains and losses on
available-for-sale securities are included in accumulated other
comprehensive income, net of applicable deferred income
taxes. All other securities are recorded at cost. Unrealized
losses on all marketable securities and investments that are
other than temporary are recognized in earnings.
Inventories — Inventory is valued at the lower of acquisition or
manufacturing cost or market, cost being generally determined
on the basis of an average or first-in, first-out method (“FIFO”).
Certain of the Group’s U.S. inventories are valued using the
last-in, first-out method (“LIFO”). Manufacturing costs comprise
direct material and labor and applicable manufacturing
overheads, including depreciation charges.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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