Mercedes 2010 Annual Report Download - page 187

Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 183
Upon initial recognition, financial instruments are measured
at fair value. For the purpose of subsequent measurement,
financial instruments are allocated to one of the categories men-
tioned in IAS39 Financial Instruments: Recognition and Measure-
ment. Transaction costs directly attributable to acquisition or
issuance are considered by determining the carrying amount if
the financial instruments are not measured at fair value through
profit or loss. If the transaction date and the settlement date
(i.e. the date of delivery) differ, Daimler uses the transaction
date for purposes of initial recognition or derecognition.
Financial assets. Financial assets primarily comprise receivables
from financial services, trade receivables, receivables from banks,
cash on hand, derivative financial assets and marketable securi-
ties and investments.
Financial assets at fair value through profit or loss. Financial
assets at fair value through profit or loss include those financial
assets designated as held for trading.
Financial assets such as shares and interest-bearing securities
are classified as held for trading if they are acquired for the pur-
pose of selling in the near term. Derivatives, including embed-
ded derivatives separated from the host contract, are also clas-
sified as held for trading unless they are designated as effective
hedging instruments. Gains or losses on financial assets held for
trading are recognized in profit or loss.
Loans and receivables. Loans and receivables are non-derivative
financial assets with fixed or determinable payments that are
not quoted in an active market, such as receivables from financial
services or trade receivables. After initial recognition, loans
and receivables are subsequently carried at amortized cost using
the effective interest method less any impairment losses,
if necessary. Gains and losses are recognized in the statement
of income when the loans and receivables are derecognized
or impaired. Interest effects on the application of the effective
interest method are also recognized in profit or loss.
Available-for-sale financial assets. Available-for-sale financial
assets are non-derivative financial assets that are designated
as available for sale or that are not classified in any of the pre-
ceding categories. This category includes, among others, equity
instruments and debt instruments such as government bonds,
corporate bonds and commercial paper.
After initial measurement, available-for-sale financial assets
are measured at fair value, with unrealized gains or losses
being recognized in equity within other reserves (reserves from
available-for-sale financial assets). If objective evidence of
impairment exists or if changes occur in the fair value of a debt
instrument resulting from currency fluctuations, these changes
are recognized in profit or loss. Upon disposal of financial assets,
the accumulated gains and losses recognized in equity resulting
from measurement at fair value are recognized in profit or
loss. If a reliable estimate of the fair value of an unquoted equity
instrument, such as investments in German limited liability
companies, cannot be made, this instrument is measured at
cost (less any impairment losses). Interest earned on these
financial assets is generally reported as interest income using
the effective interest method. Dividends are recognized in profit
or loss when the right of payment has been established.
Cash and cash equivalents. Cash and cash equivalents consist
primarily of cash on hand, checks, demand deposits at banks
as well as debt instruments and certificates of deposits with an
original term of up to three months. Cash and cash equivalents
correspond with the classification in the consolidated statement
of cash flows.
Impairment of financial assets. At each reporting date,
the carrying amounts of the financial assets other than those
to be measured at fair value through profit or loss are assessed
to determine whether there is objective evidence of impairment
(e.g. a debtor is facing serious financial difficulties or there
is a substantial change in the technological, economic, legal
or market environment of the debtor).
For quoted equity instruments, a significant or prolonged de-
cline in fair value is additional objective evidence for a possible
impairment. Daimler has defined criteria for the significance
and duration of a decline in fair value. A decline in fair value is
deemed significant if it exceeds 20% of the carrying amount
of the investment; a decline is deemed prolonged if the carry-
ing amount exceeds the fair value for a period longer than nine
months.