Mercedes 2006 Annual Report Download - page 169

Consolidated Financial Statements | Basis of Presentation | 153
Property, plant and equipment. Property, plant and equipment
is valued at acquisition or manufacturing costs plus the fair
value of related asset retirement costs, if any and if reasonably
estimable, less accumulated depreciation. Plant and equipment
under capital leases are stated at the lower of present value of
minimum lease payments or fair value less accumulated amorti-
zation. Depreciation expense is recognized using the straight-line
method. The costs of internally produced equipment and facili-
ties include all direct costs and allocable manufacturing overhead
including depreciation charges as well as the fair value of related
asset retirement cost, if any. Costs of the construction of certain
long-term assets include capitalized interest, which is amortized
over the estimated useful life of the related asset. Property, plant
and equipment are depreciated over the following useful lives:
Leasing. Leasing includes all arrangements that transfer the
right to use specified property, plant or equipment for a stated
period of time, even if the right to use such property, plant
or equipment is not explicitly described in an arrangement. 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. Rent expense on operating lease where the Group is
lessee is recognized over the respective lease terms using the
straight-line method. Equipment on operating leases where
the Group is lessor is carried initially at its acquisition or production
cost and is depreciated over the contractual term of the lease,
using the straight-line method, to its estimated residual value.
The estimated residual value is initially determined using
published third-party information as well as projections based
on historical experience about expected resale values for the
types of equipment leased.
Impairment of long-lived assets. Long-lived assets held and
used, such as property, plant and equipment and purchased
intangible assets subject to amortization, are reviewed for impair-
ment whenever events or changes in circumstances indicate
that the carrying amount of an asset or group of assets may not
be recoverable. Recoverability of assets to be held and used is
measured by comparing the carrying amount of an asset or asset
group to the estimated future undiscounted cash flows expected
to be generated by the asset or group of assets. If the carrying
amount of an asset or group of assets exceeds its estimated
future undiscounted cash flows, an impairment charge is recog-
nized in the Group’s financial statements by the amount by
which the carrying amount of the asset or group of assets exceeds
fair value of the asset or group of assets.
Assets and liabilities held for sale. Long-lived assets and dis-
posal groups classified as held for sale are disclosed separately.
Long-lived assets held for sale are reported at the lower of the
carrying amount or fair value less costs to sell, and are no longer
depreciated. See Note 9 for further information.
Non-fixed assets. Non-fixed assets comprise the Group’s
inventories, receivables, securities and cash, including amounts
to be realized in excess of one year. In these notes, the portion
of assets to be realized in excess of one year has been disclosed.
Inventories. Inventories are valued at the lower of acquisition
or manufacturing cost or market value, cost being generally
determined on the basis of an average or first-in, first-out method
(“FIFO”). Certain of the Group’s US 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.
5 to 50 years
3 to 30 years
2 to 33 years
Buildings and site improvements
Technical equipment and machinery
Other equipment, factory and office equipment