Mercedes 2002 Annual Report Download - page 104

98 |Notes to Consolidated Financial Statements
For the Group’s subsidiaries in Germany, depreciation
expense for property, plant and equipment placed in service
before January 1, 2001 is being recognized using either the
straight-line method or the declining balance method until the
straight-line method yields larger expenses. Property, plant
and equipment placed in service at these companies after
December 31, 2000 is depreciated using the straight-line
method of depreciation. This change in accounting method for
new additions beginning January 1, 2001 was made to reflect
improvements in the design and flexibility of manufacturing
machinery and equipment and improvements in maintenance
practices. These improvements have resulted in more uniform
productive capacities and maintenance costs over the useful
life of an asset, and straight-line depreciation is preferable
in these circumstances. The effect of this change in method
on net income in 2002 and on the net loss in 2001 was not
significant.
As part of its Turnaround Plan objectives (see Note 7), the
Chrysler Group has lengthened its platform life-cycles and
is aggressively pursuing a strategy to use manufacturing
equipment for more than one product launch. The Chrysler
Group performed an extensive engineering review of the
assets utilized in its manufacturing facilities. These studies
resulted in revisions to the estimated remaining useful lives as
well as a reduction in estimated salvage values of certain
manufacturing machinery, equipment and tooling to better
represent the revised platform strategy and the increased use
of flexible manufacturing techniques in its facilities. The
change in these estimated useful lives and salvage values was
applied to existing assets and new additions beginning in
2002. The change in estimates resulted in reduced deprecia-
tion and amortization expenses of machinery, equipment and
tooling of 1324 million (1206 million, net of taxes, or 10.20
per diluted share) for the year ended December 31, 2002.
Leasing – The Group is a lessee of property, plant and equip-
ment and lessor of equipment, principally passenger cars
and commercial vehicles. All leases that meet certain specified
criteria intended to represent situations where the substantive
risks and rewards of ownership have been transferred to the
lessee are accounted for as capital leases. All other leases are
accounted for as operating leases. Rent expenses on operat-
ing leases, where the Group is lessee, is recognized over the
respective lease terms using the straight-line method. Equip-
ment on operating leases, where the Group is lessor, is carried
initially at its acquisition cost and is depreciated over the
contractual term of the lease, using the straight-line method,
to its estimated residual value. The estimated residual value is
initially determined using published third party information as
well as historical and projected experience about expected
resale values for the types of equipment leased.
Long-Lived Assets – The Group evaluates its long-lived
assets (which includes equipment on operating leases where
the Group is lessor, but excludes goodwill) in accordance with
the provisions of SFAS 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets” (see New Accounting Pro-
nouncements). This Statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that
the carrying amount of an asset or group of assets may not be
recoverable. Recoverability of assets to be held and used
is assessed by comparing the carrying amount of an asset or
asset group to the expected future undiscounted net cash
flows of the asset or group of assets. If an asset or group of
assets is considered to be impaired, the impairment to be
recognized in the Group’s financial statements is measured as
the amount by which the carrying amount of the asset or
group of assets exceeds fair value. Long-lived assets meeting
the criteria to be considered as held for sale are reported
at the lower of their carrying amount or fair value less costs to
sell.
Non-fixed Assets – Non-fixed assets represent the Group’s
inventories, receivables, securities and cash, including
amounts to be realized in excess of one year. In the accompa-
nying notes, the portion of assets and liabilities to be realized
and settled in excess of one year has been disclosed.
Inventories – Inventories are valued at the lower of acqui-
sition or manufacturing cost or market, cost being generally
determined on the basis of an average or first-in, first-out
method (“FIFO”). Certain of the Group’s U.S. inventories are
valued using the last-in, first-out method (“LIFO”). Manufactur-
ing costs comprise direct material and labor and applicable
manufacturing overheads, including depreciation charges.