Mercedes 2009 Annual Report Download - page 185

Consolidated Financial Statements |Notes to Consolidated Financial Statements |181
Use of estimates and judgments. Preparation of the consoli-
dated financial statements requires management to make esti-
mates and judgments related to the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabil-
ities at the date of the consolidated financial statements and the
reported amounts of revenue and expense for the period. Signifi-
cant items related to such estimates and judgments include
recoverability of investments in equipment on operating leases,
investments in associated companies, collectability of receiv-
ables from financial services, assumptions of future cash flows
from cash-generating units or development projects, recover-
ability of deferred tax assets, useful lives of plant and equipment,
warranty obligations, and assets and obligations related to
employee benefits. Actual amounts could differ from those esti-
mates.
Risks and uncertainties. Daimler’s financial position, results of
operations and cash flows are subject to numerous risks and
uncertainties. For example, stagnation or a renewed downturn of
the global economy could cause actual results to vary from cur-
rent expectations. Additional parameters which may cause actual
results to differ from current expectations include further increas-
es in overcapacity and the intensity of competition in the automo-
tive industry; dependence on suppliers, especially single-source
suppliers; a permanent shift in consumer preference towards
smaller cars; implementation of new technologies; fluctuations
in currency exchange rates, interest rates and commodity prices;
the resolution of significant legal proceedings; and environmental
and other government regulations.
Principles of consolidation. The consolidated financial state-
ments include the financial statements of Daimler and, in gener-
al, the financial statements of Daimler’s subsidiaries, including
special purpose entities which are directly or indirectly controlled
by Daimler. Control means the power, directly or indirectly, to
govern the financial and operating policies of an entity so that
the Group obtains benefits from its activities.
The financial statements of consolidated subsidiaries are gener-
ally prepared as of the balance sheet date of the consolidated
financial statements, except for Mitsubishi Fuso Truck and Bus
Corporation (MFTBC), a significant subgroup which is consoli-
dated with a one-month time lag. Adjustments are made for sig-
nificant events or transactions that occur during the time lag.
The financial statements of Daimler and its subsidiaries included
in the consolidated financial statements have been prepared
using uniform recognition and valuation principles. All significant
intercompany accounts and transactions relating to consolidated
subsidiaries and consolidated special purpose entities have been
eliminated.
Business combinations are accounted for using the purchase
method.
As a further funding source, Daimler transfers finance receiv-
ables, in particular receivables from the leasing and automotive
business, to special purpose entities. Daimler thereby princi-
pally retains significant risks of the transferred receivables.
According to IAS 27 Consolidated and Separate Financial State-
ments and the Standing Interpretations Committee (SIC) Inter-
pretation 12 Consolidation – Special Purpose Entities, those spe-
cial purpose entities have to be consolidated by the transferor.
The transferred financial assets remain on Daimler’s consolidat-
ed statement of financial position.
Investments in associated companies and joint ventures.
Associated companies are equity investments in which Daimler
has the ability to exercise significant influence over the financial
and operating policies of the investee. Joint ventures are those
entities over whose activities Daimler has joint control with part-
ners, established by contractual agreement and requiring
unanimous consent for strategic financial and operating decisions.
Associated companies and joint ventures are accounted for
using the equity method.
The excess of the cost of Daimler’s initial investment in equity
method companies over the Group’s proportionate reassessed
ownership interest is recognized as investor level goodwill and
included in the carrying amount of the investment accounted for
using the equity method.
If the carrying amount exceeds the recoverable amount of an
investment in any associated company or joint venture, the carry-
ing amount of the investment has to be reduced to the recover-
able amount. The recoverable amount is the higher of fair value
less costs to sell and value in use. An impairment loss is recog-
nized in the income statement in the line item “Share of profit (loss)
from investments accounted for using the equity method, net.”
Income and expenses from the sale of investments accounted for
using the equity method are shown in the same line item.
Profits from transactions with associated companies and joint
ventures are eliminated by reducing the carrying amount of the
investment.