Mercedes 2002 Annual Report Download - page 105

Notes to Consolidated Financial Statements |99
Marketable Securities and Investments – Securities and
certain investments are accounted for at fair value, if readily
determinable. Unrealized gains and losses on trading securi-
ties, representing securities bought principally for the purpose
of near term sales, are included in earnings. Unrealized gains
and losses on available-for-sale securities are included as
a component of accumulated other comprehensive income
(loss), net of applicable taxes. All other securities are recorded
at cost. Unrealized losses on all marketable securities and
investments that are other than temporary are recognized in
earnings.
Cash equivalents – The Group’s liquid assets are recorded
under various balance sheet captions as more fully described
in Note 21. For purposes of the consolidated statements of
cash flows, the Group considers all highly liquid instruments
with original maturities of three months or less to be cash
equivalents.
Financial Instruments — DaimlerChrysler uses derivative
financial instruments such as forward contracts, swaps, options,
futures, swaptions, forward rate agreements, caps and floors
for hedging purposes. The accounting of financial instruments
is based upon the provisions of SFAS 133 “Accounting for
Derivative Instruments and Hedging Activities,” as amended
by SFAS 137 and 138 (see Note 10). SFAS 133 requires that
all derivative instruments are recognized as assets or liabilities
on the balance sheet and measured at fair value, regardless
of the purpose or intent for holding them. Changes in the fair
value of derivative instruments are recognized periodically
either in earnings or stockholders’ equity, as a component of
accumulated other comprehensive income (loss), depending
on whether the derivative is designated as a hedge of changes
in fair value or cash flows. For derivatives designated as fair
value hedges, changes in fair value of the hedged item and the
derivative are recognized currently in earnings. For derivatives
designated as cash flow hedges, fair value changes of the
effective portion of the hedging instrument are recognized in
accumulated other comprehensive income on the balance
sheet, net of applicable taxes, until the hedged item is recog-
nized in earnings. The ineffective portions of the fair value
changes are recognized in earnings immediately. Derivatives
not meeting the criteria for hedge accounting are marked
to market and impact earnings. SFAS 133 also requires that
certain derivative instruments embedded in host contracts
be accounted for separately as derivatives.
Further information on the Group’s financial instruments
is included in Note 32.
Commitments and Contingencies – Liabilities for loss contin-
gencies are recorded when it is probable that a liability has
been incurred and the amount can be reasonably estimated.
DaimlerChrysler accrues for losses associated with environ-
mental remediation obligations when such losses are probable
and reasonably estimable. Accruals for estimated losses from
environmental remediation obligations generally are recog-
nized no later than completion of the remedial feasibility
study. Such accruals are adjusted as further information
develops or circumstances change. Costs of future expendi-
tures for environment remediation obligations are not dis-
counted to their present value. Recoveries of environmental
remediation costs from other parties are recorded as assets
when their receipt is deemed probable.
Deposits from Direct Banking Business – Demand deposit
accounts are classified as financial liabilities. Interest paid on
demand deposit accounts is recognized in cost of sales as
incurred.
New Accounting Pronouncements – In July 2001, the Finan-
cial Accounting Standards Board (“FASB”) issued SFAS 141,
“Business Combinations,” and SFAS 142. SFAS 141 requires
that the purchase method of accounting be used for all busi-
ness combinations initiated after June 30, 2001. SFAS 141
also specifies the types of acquired intangible assets that are
required to be recognized and reported separately from good-
will and those acquired intangible assets that are required
to be included in goodwill. SFAS 142 requires that goodwill no
longer be amortized, but instead tested for impairment at
least annually. SFAS 142 also requires recognized intangible
assets with a definite useful life to be amortized over their
respective estimated useful lives and reviewed for impairment
in accordance with SFAS 144 (see below). Any recognized
intangible asset determined to have an indefinite useful life
will not be amortized, but instead tested for impairment
in accordance with SFAS 142 until its life is determined to no
longer be indefinite.