Mercedes 2010 Annual Report Download - page 189

Consolidated Financial Statements | Notes to the Consolidated Financial Statements | 185
Expenses resulting from the compounding of pension benefit
obligations and other post-employment benefit obligations
as well as the expected returns on plan assets are presented
within interest expense and interest income. The amortization
of unrecognized actuarial gains and losses is also included in
these line items. Other expenses resulting from providing pen-
sion benefits and other post-employment benefits are allocated
to the functional costs in the consolidated statement of income/
loss.
Gains or losses on the curtailment or settlement of a defined
benefit plan are recognized when the curtailment or settlement
occurs.
Provisions for other risks and contingent liabilities. A provi-
sion is recognized when a liability to third parties has been
incurred, an outflow of resources is probable and the amount
of the obligation can be reasonably estimated. Provisions with
an original maturity of more than one year are discounted to the
present value of the expenditures expected to settle the obliga-
tion at the end of the reporting period. In particular, restructur-
ing provisions are recognized when the Group has a detailed
formal plan that has either commenced implementation or been
announced. Provisions are regularly reviewed and adjusted
as further information develop or circumstances change.
The provision for expected warranty costs is established when
the product is sold, upon lease inception, or when a new war-
ranty program is initiated. Estimates for accrued warranty costs
are primarily based on historical experience.
Daimler records the fair value of an asset retirement obligation
from the period in which the obligation is incurred.
Restructuring provisions arise from planned programs that mate-
rially change the scope of business performed by a segment
or business unit or the manner in which business is conducted.
In most cases, restructuring expenses include termination
benefits and compensation payments due to the termination
of agreements with suppliers and dealers.
Share-based payment. Share-based payment comprises
cash-settled liability awards and equity-settled equity awards.
Changes in the fair value of derivative financial instruments are
recognized periodically in either earnings or equity, as a com-
ponent of other reserves, depending on whether the derivative
is designated as a hedge of changes in fair value or cash flows.
For fair value hedges, changes in the fair value of the hedged item
and the derivative are recognized currently in earnings. For
cash flow hedges, fair value changes in the effective portion of
the hedging instrument are recognized in other reserves, net of
applicable taxes. Amounts taken to equity are reclassified to
the statement of income/loss when the hedged transaction affects
the statement of income/loss. The ineffective portions of fair
value changes are recognized in profit or loss.
If derivative financial instruments do not or no longer qualify
for hedge accounting because the qualifying criteria for hedge
accounting are not or are no longer met, the derivative financial
instruments are classified as held for trading.
Pensions and similar obligations. The measurement of defined
benefit plans for pensions and other post-employment benefits
(medical care) in accordance with IAS19 Employee Benefits is
based on the projected unit credit method. For the valuation
of defined post-employment benefit plans, differences between
actuarial assumptions used and actual results and changes in
actuarial assumptions result in actuarial gains and losses, which
generally have to be amortized in future periods. Amortization
of unrecognized actuarial gains and losses arising after the tran-
sition to IFRS on January 1, 2005 is recorded in accordance
with the “corridor approach.” This approach requires partial amor-
tization of actuarial gains and losses in the following year with
an effect on earnings if the unrecognized gains and losses exceed
10 percent of the greater of (1) the defined post-employment
benefit obligation or (2) the fair value of the plan 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.