Mercedes 2008 Annual Report Download - page 158

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Inventories. Inventories are measured at the lower of cost and
net realizable value. The net realizable value is the estimated sell-
ing price less any remaining costs to sell. The cost of inventories
is based on the average cost principle and includes expenditures
incurred in acquiring the inventories and bringing them to their
existing location and condition. In the case of manufactured inven-
tories and work in progress, cost also includes production over-
heads based on normal capacity.
Financial instruments. A financial instrument is any contract
that gives rise to a financial asset of one entity and a financial
liability or equity instrument of another entity. Financial instru-
ments in the form of financial assets and financial liabilities
are generally presented separately. Financial instruments are rec-
ognized as soon as Daimler becomes a party to the contractual
provisions of the financial instrument.
Upon initial recognition financial instruments are measured at
fair value. For the purpose of subsequent measurement, financial
instruments are allocated to one of the categories mentioned in
IAS 39 “Financial Instruments: Recognition and Measurement.”
Transaction costs directly attributable to acquisition or issuance
are considered by determining the carrying amount if the financial
instruments are not measured at fair value through profit or
loss. If the trade date and the settlement date (i.e. the date of
delivery) differ, Daimler uses the trade date for purposes of
initial recognition or derecognition.
Financial assets. Financial assets primarily comprise receiv-
ables from financial services, trade receivables, receivables from
banks, cash on hand, derivative financial assets and marketable
securities and investments.
Financial assets at fair value through profit or loss. Financial
assets at fair value through profit or loss include those financial
assets designated as held for trading.
Financial assets such as shares and interest-bearing securities
are classified as held for trading if they are acquired for the
purpose of selling in the near term. Derivatives, including embed-
ded derivatives separated from the host contract, are also
classified as held for trading unless they are designated as effec-
tive hedging instruments. Gains or losses on financial assets
held for trading are recognized in profit or loss.
Loans and receivables. Loans and receivables are non-derivative
financial assets with fixed or determinable payments that
are not quoted in an active market, such as receivables from
financial services or trade receivables. After initial recogni-
tion, loans and receivables are subsequently carried at amortized
cost using the effective interest method less any impairment
losses, if necessary. Gains and losses are recognized in the income
statement when the loans and receivables are derecognized
or impaired. Interest effects on the application of the effective
interest method are also recognized in profit or loss.
Available-for-sale financial assets. Available-for-sale financial assets
are non-derivative financial assets that are designated as
available for sale or that are not classified in any of the preceding
categories. This category includes, among others, equity
instruments and debt instruments such as government bonds,
corporate bonds and commercial paper.
After initial measurement, available-for-sale financial assets are
measured at fair value with unrealized gains or losses being
recognized in equity in reserves from financial assets available-
for-sale. If objective evidence of impairment exists or if changes
in the fair value of a debt instrument resulting from currency
fluctuations occur, these changes are recognized in profit or loss.
Upon disposal of financial assets the accumulated gains and
losses recognized in equity resulting from measurement at fair
value are recognized in profit or loss. If a reliable estimate of
the fair value of an unquoted equity instrument cannot be made,
this instrument is measured at cost (less any impairment losses).
Interest earned on these financial assets is generally reported
as interest income using the effective interest rate method.
Dividends are recognized in profit or loss when the right of pay-
ment has been established.
Cash and cash equivalents. Cash and cash equivalents consist
primarily of cash on hand, checks, demand deposits at banks as
well as debt instruments and certificates of deposits with an
original term of up to three months. Cash and cash equivalents
correspond with the classification in the consolidated state-
ments of cash flows.