Mercedes 2009 Annual Report Download - page 190

186
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 recognition, loans and
receivables are subsequently carried at amortized cost using the
effective interest method less any impairment losses, if neces-
sary. 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 cate-
gories. 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 recog-
nized in equity within other reserves (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 measurment
at fair value are recognized in profit or loss. If a reliable estimate
of the fair value of an unquoted equity instrument such as invest-
ments in German limited liability companies, 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. Divi-
dends are recognized in profit or loss when the right of payment
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 orig-
inal term of up to three months. Cash and cash equivalents cor-
respond with the classification in the consolidated statements of
cash flows.
Impairment of financial assets. At each reporting date, the
carrying amounts of the financial assets other than those
to be measured at fair value through profit or loss are assessed
to determine whether there is objective, significant evidence of
impairment (e.g. a debtor is facing serious financial difficulties or
there is a substantial change in the technological, economic,
legal or market environment of the debtor).
For quoted equity instruments, a significant or prolonged decline
in fair value is an additional objective evidence for a possible
impairment. Daimler has defined criteria for the significance and
duration of a decline in fair value.
A decline in fair value is deemed significant if it exceeds 20% of
the carrying amount of the investment; it is deemed prolonged to
the extent that it does not reverse within nine months.
Loans and receivables. The amount of the impairment loss on
loans and receivables is measured as the difference between the
carrying amount of the asset and the present value of estimated
future cash flows (excluding expected future credit losses that
have not been incurred), discounted at the original effective
interest rate of the financial asset. The amount of the impairment
loss is recognized in profit or loss.
If, in a subsequent reporting period, the amount of the impair-
ment loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognized,
the impairment loss recorded in prior periods is reversed and
recognized in profit or loss.
In most cases, an impairment loss on loans and receivables (e.g.
receivables from financial services including finance lease receiv-
ables, trade receivables) is recorded using allowance accounts.
The decision to account for credit risks using an allowance account
or by directly reducing the receivable depends on the esti-
mated probability of the loss of receivables. When receivables
are assessed as uncollectible, the impaired asset is derecog-
nized.
Available-for-sale financial assets. If an available-for-sale financial
asset is impaired, the difference between its cost (net of any
principal payment and amortization) and its current fair value,
less any impairment loss previously recognized in the income
statement, is reclassified from direct recognition in equity to the
income statement. Reversals with respect to equity instruments
classified as available for sale are recognized in equity. Reversals
of impairment losses on debt instruments are reversed through
the statement of income if the increase in fair value of the instru-
ment can be objectively related to an event occurring after the
impairment losses were recognized in income.