Mercedes 2010 Annual Report Download - page 184

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Revenue from receivables from financial services is recognized
using the effective interest method. When loans are issued
below market rates, related receivables are recognized at present
value and revenue is reduced for the interest incentive granted.
The Group offers an extended, separately priced warranty for
certain products. Revenue from these contracts is deferred and
recognized into income over the contract period in proportion
to the costs expected to be incurred based on historical informa-
tion. In circumstances in which there is insufficient historical
information, income from extended warranty contracts is
recognized on a straight-line basis. A loss on these contracts
is recognized in the current period if the sum of the expected
costs for services under the contract exceeds unearned revenue.
For transactions with multiple deliverables, such as when
vehicles are sold with free or reduced in price service programs,
the Group allocates revenue to the various elements based on
their estimated fair values.
Sales in which the Group guarantees the minimum resale value
of the product, such as sales to certain rental car companies,
are accounted for similar to an operating lease. The guarantee
of the resale value may take the form of an obligation by Daimler
to pay any deficiency between the proceeds the customer receives
upon resale in an auction and the guaranteed amount, or an
obligation to reacquire the vehicle after a certain period of time
at a set price. Gains or losses from the resale of these vehicles
are included in gross profit.
Revenue from operating leases is recognized on a straight-line
basis over the lease term. Among the assets subject to “Operating
leases” are Group products which are purchased by Daimler
Financial Services from independent third-party dealers and
leased to customers. After revenue recognition from the sale
of the vehicles to independent third-party dealers, these vehicles
create further revenue from leasing and remarketing as a result
of lease contracts entered into. The Group estimates that the
revenue recognized following the sale of vehicles to dealers
equals approximately the additions to leased assets at Daimler
Financial Services. Additions to leased assets at Daimler
Financial Services were approximately €5 billion in 2010
(2009: approximately €4 billion).
Research and non-capitalized development costs. Expenditure
for research and development that does not meet the conditions
for capitalization according to IAS 38 Intangible Assets is expensed
as incurred.
Borrowing costs. Borrowing costs are expensed as incurred
unless they are directly attributable to the acquisition, construc-
tion or production of a qualifying asset and therefore are part
of the cost of that asset.
Government grants. Government grants related to assets are
deducted in calculating the carrying amount of the asset and are
recognized in profit or loss over the life of a depreciable asset
as a reduced depreciation expense. Government grants which
compensate the Group for expenses, are recognized as other
financial income in same periods as the expenses themselves.
Interest income and expense. Interest income and expense
includes interest expense from liabilities, interest income from
investments in securities, cash and cash equivalents and
interest as well as changes in fair values related to interest rate
hedging activities. Income and expense resulting from the allo-
cation of premiums and discounts is also included. Furthermore,
the interest component of pensions and similar obligations is
presented in this line item.
An exception to the afore mentioned principles is made for
Daimler Financial Services. In this case, the interest income and
expense and the result from derivative financial instruments are
disclosed under revenue and cost of sales, respectively.
Other financial income/expense, net. Other financial income/
expense, net includes all income and expense from financial
transactions which are not included in interest income and
expense, and for Daimler Financial Services not included in
revenue and cost of sales. For example, expense from the com-
pounding of interest on provisions for other risks is recorded
in this line item.