Mercedes 2006 Annual Report Download - page 167

Estimated credit losses. DaimlerChrysler determines its
allowance for credit losses based on an ongoing systematic review
and evaluation performed as part of the credit-risk evaluation
process. The evaluation performed considers historical loss expe-
rience, the size and composition of the portfolios, current eco-
nomic events and conditions, the estimated fair value and adequa-
cy of collateral and other pertinent factors. Certain homogeneous
loan portfolios are evaluated collectively, taking into considera-
tion primarily historical loss experience adjusted for the estimated
impact of current economic events and conditions, including
fluctuations in the fair value and adequacy of collateral. Certain
receivables, such as wholesale receivables and loans to large
commercial borrowers, are evaluated for impairment individually
based on the fair value of the underlying collateral. Credit
exposures deemed to be uncollectible are charged against the
allowance for doubtful accounts. DaimlerChrysler generally
does not originate or purchase receivables for resale. Loans that
are classified as held for sale are carried at the lower of cost
or market value when it is determined that the market price for the
loan represents the estimated future cash flows on the loan.
Research and development and advertising. Research and
development and advertising costs are expensed as incurred.
Sales of newly issued subsidiary stock. Gains and losses
resulting from the issuance of stock by a Group subsidiary to
third parties that reduce DaimlerChrysler’s percentage
ownership (“dilution gains and losses”) and DaimlerChrysler’s
share of any dilution gains and losses reported by its investees
accounted for under the equity method are recognized in
the Group’s consolidated statement of income in the line item
“other financial income (expense), net.”
Income taxes. Current income taxes are determined based on
respective local taxable income and tax rules. In addition, current
income taxes include adjustments for uncertain tax payments
or tax refunds for periods not yet assessed and interest on taxes
as well as ancillary tax payments. Deferred tax reflects the
changes in deferred tax assets and liabilities except for changes
recognized in other comprehensive loss. Deferred tax assets or
liabilities are determined based on temporary differences
between financial reporting and the tax basis of assets and liabili-
ties including differences from consolidation, loss carry for-
wards and tax credits. Amortization of these differences or real-
ization of loss carry forwards and tax credits are based on
enacted local tax rules and tax rates. DaimlerChrysler recognizes
a valuation allowance on deferred tax assets if it is more likely
than not that the benefit from the deferred tax asset will not be
realized.
Pension and other postretirement plans. The measurement
of pension and other postretirement benefit liabilities is based
upon the projected unit credit method in accordance with SFAS 87,
“Employers’ Accounting for Pensions,” and SFAS 106,
“Employers’ Accounting for Postretirement Benefits Other Than
Pensions,” respectively.
The expected return on plan assets is determined based on the
expected long-term rate of return on plan assets and the fair
value of plan assets. Amortization of a cumulative actuarial net
gain or loss is included as a component of the Group’s net
periodic benefit plan cost for a year if, as of the beginning of the
year, that cumulative actuarial net gain or loss exceeds 10 per-
cent of the greater of (1) the projected benefit obligation for pen-
sion plans or the accumulated postretirement benefit obligation
for other postretirement plans or (2) the fair value of that plan’s
assets. In such cases, the amount of amortization recognized by
the Group is the resulting excess divided by the average remaining
service period of active employees expected to receive benefits
under the plan (see Note 24a).
Consolidated Financial Statements | Basis of Presentation | 151