Mercedes 2010 Annual Report Download - page 188

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Loans and receivables. The amount of the impairment loss on
loans and receivables is measured as the difference between
the carrying amount of the asset and the present value of
expected future cash flows (excluding expected future credit
losses that have not been incurred), discounted at the original
effective interest rate of the financial asset. The amount of the
impairment loss is recognized in profit or loss.
If, in a subsequent reporting period, the amount of the impair-
ment loss decreases and the decrease can be attributed objec-
tively to an event occurring after the impairment was recog-
nized, the impairment loss recorded in prior periods is reversed
and recognized in profit or loss.
In most cases, an impairment loss on loans and receivables
(e.g. receivables from financial services including finance lease
receivables, trade receivables) is recorded using allowance
accounts. The decision to account for credit risks using an allow-
ance account or by directly reducing the receivable depends
on the estimated probability of the loss of receivables. When
receivables are assessed as uncollectible, the impaired asset
is derecognized.
Available-for-sale financial assets. If an available-for-sale financial
asset is impaired, the difference between its cost (net of any
principal payment and amortization) and its current fair value,
less any impairment loss previously recognized in the state-
ment of income/loss, is reclassified from direct recognition in
equity to the statement of income/loss. Reversals with respect
to equity instruments classified as available for sale are
recognized in equity. Reversals of impairment losses on debt in-
struments are reversed through the statement of income/loss
if the increase in fair value of the instrument can be objectively
attributed to an event occurring after the impairment losses
were recognized in income/loss.
Financial liabilities. Financial liabilities primarily include trade
payables, liabilities to banks, bonds, derivative financial liabilities
and other liabilities.
Financial liabilities measured at amortized cost. After initial
recognition, financial liabilities are subsequently measured at
amortized cost using the effective interest method.
Financial liabilities at fair value through profit or loss. Financial
liabilities at fair value through profit or loss include financial
liabilities held for trading. Derivatives, including embedded deriva-
tives separated from the host contract, are classified as held
for trading unless they are designated as effective hedging instru-
ments in hedge accounting. Gains or losses on liabilities held
for trading are recognized in profit or loss.
Derivative financial instruments and hedge accounting.
Daimler uses derivative financial instruments such as forward
contracts, swaps, options, futures, swaptions, forward rate
agreements, caps and floors mainly for the purpose of hedging
interest rate and currency risks that arise from its operating,
financing, and investing activities.
Embedded derivatives are separated from the host contract
which is not measured at fair value through profit or loss, if the
analysis shows that the economic characteristics and risks
of embedded derivatives are not closely related to those of the
host contract.
Derivative financial instruments are measured at fair value upon
initial recognition and at each subsequent reporting date.
The fair value of listed derivatives is equal to their positive or
negative market value. If a market value is not available, fair
value is calculated using standard financial valuation models such
as discounted cash flow or option pricing models. Derivatives
are presented as assets if their fair value is positive and as liabili-
ties if the fair value is negative.
If the requirements for hedge accounting set out in IAS39 are
met, Daimler designates and documents the hedge relationship
from the date a derivative contract is entered into as either
a fair value hedge or a cash flow hedge. In a fair value hedge,
the fair value of a recognized asset or liability or an unrecognized
firm commitment is hedged. In a cash flow hedge, the variabil-
ity of cash flows to be received or paid related to a recognized
asset or liability or a highly probable forecast transaction is
hedged. The documentation of the hedging relationship includes
the objectives and strategy of risk management, the type of
hedging relationship, the nature of risk being hedged, the identi-
fication of the hedging instrument and the hedged item, as well
as a description of the method used to assess hedge effectiveness.
The hedging transactions are expected to be highly effective
in achieving offsetting changes in fair value or cash flows and
are regularly assessed to determine that they have actually
been highly effective throughout the financial reporting periods
for which they are designated.