Mercedes 2008 Annual Report Download - page 155

Consolidated Financial Statements |Notes to Consolidated Financial Statements |151
Foreign currency translation. Transactions in foreign currency
are translated at the relevant foreign exchange rates prevailing at
the transaction date. Subsequent gains and losses from the
remeasurement of financial assets and liabilities denominated in
foreign currency are recognized in profit and loss (except for
available-for-sale equity instruments and financial liabilities des-
ignated as a hedge of a net investment in a foreign operation).
The assets and liabilities of foreign companies for which the func-
tional currency is not the euro are translated into euros using
period-end exchange rates. The translation adjustments generat-
ed after the transition to IFRS on January 1, 2005, are recor-
ded directly in equity. The consolidated statements of income
and cash flows are translated into euros using average
exchange rates during the respective periods.
The exchange rates of the US dollar, the most significant
foreign currency for Daimler, were as follows:
Accounting policies
Revenue recognition. Revenue from sales of vehicles, service
parts and other related products is recognized when the risks
and rewards of ownership of the goods are transferred to the
customer, the amount of revenue can be estimated reliably
and collectability is reasonably assured. Revenue is recognized
net of discounts, cash sales incentives, customer bonuses
and rebates granted.
Daimler uses price discounts in response to a number of market
and product factors, including pricing actions and incentives
offered by competitors, the amount of excess industry production
capacity, the intensity of market competition, and consumer
demand for the product. The Group may offer a variety of sales
incentive programs at any point in time, including: cash offers
to dealers and consumers, lease subsidies which reduce the con-
sumers’ monthly lease payment, or reduced financing rate pro-
grams offered to consumers.
Revenue from receivables from financial services is recognized
using the effective interest method. When loans are issued below
market rates, related receivables are recognized at present value
and revenue is reduced for the interest incentive granted.
The Group offers an extended, separately priced warranty for
certain products. Revenue from these contracts is deferred and
recognized into income over the contract period in proportion
to the costs expected to be incurred based on historical informa-
tion. In circumstances in which there is insufficient historical
information, income from extended warranty contracts is recog-
nized on a straight-line basis. A loss on these contracts is
recognized in the current period if the sum of the expected costs
for services under the contract exceeds unearned revenue.
For transactions with multiple deliverables, such as when vehi-
cles are sold with free service programs, the Group allocates
revenue to the various elements based on their estimated fair
values.
Sales in which the Group guarantees the minimum resale value
of the product, such as sales to certain rental car company
customers, are accounted for similar to an operating lease. The
guarantee of the resale value may take the form of an oblig-
ation by Daimler to pay any deficiency between the proceeds the
customer receives upon resale in an auction and the guaran-
teed amount, or an obligation to reacquire the vehicle after a
certain period of time at a set price. Gains or losses from the
resale of these vehicles are included in gross profit.
Revenue from operating leases is recognized on a straight-line
basis over the lease term.
Research and non-capitalized development costs. Expendi-
ture for research and development that does not meet the
conditions for capitalization according to IAS 38 “Intangible
Assets” is expensed as incurred.
Borrowing costs. Borrowing costs are expensed as incurred.
Interest income (expense), net. Interest income (expense),
net includes interest expense from liabilities, interest income from
investments in securities, cash and cash equivalents as well
as interests and changes in fair values related to interest rate
hedging activities. Income and expense resulting from the allo-
cation of premiums and discounts is also included. Furthermore,
the interest component from pensions and similar obligations
is disclosed under this line item.
An exception to the above mentioned principles is made for
Financial Services. In this case the interest income and expense
as well as the result from derivative financial instruments are
disclosed under revenue and cost of sales, respectively.
2006
20072008
€1 =€1 = €1 =
1.3917
1.4976
1.5622
1.5050
1.3166
1.4721
1.3106
1.3481
1.3738
1.4487
1.3170
1.2023
1.2582
1.2743
1.2887
Exchange rate at December 31
Average exchange rate
First quarter
Second quarter
Third quarter
Fourth quarter