Mercedes 2002 Annual Report Download - page 101

Notes to Consolidated Financial Statements |95
The exchange rates of the significant currencies of non-euro
countries used in preparation of the consolidated financial
statements were as follows:
Revenue Recognition – Revenue for sales of vehicles,
service parts and other related products is recognized when
persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, the price of the
transaction is fixed and determinable, and collectibility is rea-
sonably assured. Revenues are recognized net of discounts,
cash sales incentives, customer bonuses and rebates granted.
Non-cash sales incentives that do not reduce the transaction
price to the customer are classified within cost of sales.
Shipping and handling costs are recorded as cost of sales in
the period incurred.
DaimlerChrysler uses price discounts (primarily at
the Chrysler Group) to adjust market pricing in response to a
number of market and product factors, including: pricing
actions and incentives offered by competitors, economic con-
ditions, 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 incen-
tive programs at any given point in time, including: cash offers
to dealers and consumers, lease subsidies which reduce the
consumer’s monthly lease payment, or reduced financing rate
programs offered to consumers.
The Group records as a reduction to revenue at the time
of sale to the dealer the estimated impact of sales incentives
programs offered to dealers and consumers. This estimated
impact represents the incentive programs offered to dealers
and consumers as well as the expected modifications to these
programs in order for the dealers to sell their inventory. The
accrued liability for sales incentives is based on the estimated
cost of the sales incentive programs and the number of vehi-
cles held in dealers’ inventory. The majority of vehicles held
in dealers’ inventory are sold to consumers within the next
quarter and the sales incentives accrued liability is adjusted
to reflect actual experience.
When below market rate loans under special financing pro-
grams are used to promote sales of vehicles and the vehicle
is financed by the Services segment, the effect of the rate
differential at the contract origination date is recorded as
unearned income in the consolidated balance sheet. Services
amortizes the unearned income balance into earnings using
the interest rate method over the original (contractual) life of
the receivables. Upon prepayment or sale of the receivable,
the unamortized unearned income is recognized into earnings.
Sales under which the Group guarantees the minimum
resale value of the product are accounted for as operating
leases with the related revenues and costs deferred at the
time of title passage. Revenue from operating leases is recog-
nized on a straight-line basis over the lease term. Revenue
on long-term contracts is generally recognized under the per-
centage-of-completion method based upon contractual mile-
stones or performance.
Revenue from sales financing and finance lease receivables
is recognized using the interest method. Recognition of
revenue is generally suspended when a finance or lease receiv-
able becomes contractually delinquent for periods ranging
from 60 to 120 days.
The Group offers extended warranty contracts for certain
products. Revenues from these contracts are deferred and
recognized into income over the contract period in proportion
to the costs expected to be incurred based on historical infor-
mation. In circumstances in which there is insufficient histori-
cal information, income is recognized on a straight-line basis.
A loss on these service contracts is recognized in the period, if
the sum of expected costs for services under the contract
exceeds unearned revenue.
The Group sells significant amounts of finance receivables
as asset-backed securities through securitization. The Group
sells a portfolio of receivables to a non-consolidated trust and
usually remains as servicer, and is paid a servicing fee. Servic-
ing fees are earned on a level-yield basis over the remaining
term of the related sold receivables. In a subordinated capacity,
the Group retains residual cash flows, a beneficial interest in
principal balances of sold receivables and certain cash
deposits provided as credit enhancements for investors. Gains
and losses from the sales of finance receivables are recog-
nized in the period in which sales occur. In determining the
gain or loss for each qualifying sale of finance receivables,
the investment in the sold receivable pool is allocated between
the portion sold and the portion retained based upon their
relative fair values.
Currency
2.05
0.61
115.33
0.88
3.71
0.65
124.39
1.05
2.78
0.63
118.04
0.95
2002
31 =
Exchange rate at
December 31,
Annual average
exchange rate
2.11
0.62
108.69
0.90
1.69
0.61
99.47
0.92
Brazil BRL
Great Britain GBP
Japan JPY
United States USD
2001
31 =
2002
31 =
2001
31 =
2000
31 =