Mercedes 2009 Annual Report Download - page 191

Consolidated Financial Statements |Notes to Consolidated Financial Statements |187
Financial liabilities. Financial liabilities primarily include trade
payables, liabilities to banks, bonds, derivative financial liabilities
and other liabilities.
Financial liabilities measured at amortized cost. After initial recog-
nition, financial liabilities are subsequently measured at amor-
tized cost using the effective interest method.
Financial liabilities at fair value through profit or loss. Financial
liabilities at fair value through profit or loss include financial liabili-
ties held for trading. Derivatives, including embedded derivatives
separated from the host contract, are classified as held for trad-
ing unless they are designated as effective hedging instruments
in hedge accounting. Gains or losses on liabilities held for trading
are recognized in profit or loss.
Derivative financial instruments and hedge accounting.
Daimler uses derivative financial instruments such as forward
contracts, swaps, options, futures, swaptions, forward rate
agreements, caps and floors mainly for the purpose of hedging
interest rate and currency risks that arise from its operating,
financing, and investing activities.
Embedded derivatives are separated from the host contract which
is not measured at fair value through profit or loss when the
analysis shows that the economic characteristics and risks of
embedded derivatives are not closely related to those of the
host contract.
Derivative financial instruments are measured at fair value upon
initial recognition and at each subsequent reporting date.
The fair value of listed derivatives is equal to their positive or nega-
tive market value. If a market value is not available, fair value
is calculated using standard financial valuation models such as
discounted cash flow or option pricing models. Derivatives are
carried as assets when the fair value is positive and as liabilities
when the fair value is negative.
If the requirements for hedge accounting set out in IAS 39 are
met, Daimler designates and documents the hedge relationship
from the date a derivative contract is entered into as either a fair
value hedge or a cash flow hedge. In a fair value hedge, the fair
value of a recognized asset or liability or an unrecognized firm
commitment is hedged. In a cash flow hedge, the variability of
cash flows to be received or paid related to a recognized asset or
liability or a highly probable forecast transaction is hedged. The
documentation of the hedging relationship includes the objec-
tives and strategy of risk management, the type of hedging rela-
tionship, the nature of risk being hedged, the identification of
the hedging instrument and the hedged item, as well as a descrip-
tion of the method used to assess hedge effectiveness. The hedg-
ing transactions are expected to be highly effective in achieving
offsetting changes in fair value or cash flows and are regularly
assessed to determine that they have actually been highly effec-
tive throughout the financial reporting periods for which they
are designated.
Changes in the fair value of derivative financial instruments are
recognized periodically in either earnings or equity, as a compo-
nent of other reserves, depending on whether the derivative is
designated as a hedge of changes in fair value or cash flows. For
fair value hedges, changes in the fair value of the hedged item
and the derivative are recognized currently in earnings. For cash
flow hedges, fair value changes in the effective portion of the
hedging instrument are recognized in other reserves, net of applic-
able taxes. Amounts taken to equity are reclassified to the income
statement when the hedged transaction affects the income state-
ment. The ineffective portion of the fair value changes is recog-
nized in profit or loss.
If derivative financial instruments do not or no longer qualify for
hedge accounting because the qualifying criteria for hedge
accounting are not or are no longer met, the derivative financial
instruments are classified as held for trading.