Mercedes 2010 Annual Report Download - page 190

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The fair value of equity awards is generally determined by using
a modified Black-Scholes option pricing model at grant date
and represents the total payment expense to be recognized dur-
ing the service period with a corresponding increase in equity
(paid-in capital).
Liability awards are measured at fair value at each balance sheet
date until settlement and are classified as provisions. The expense
of the period comprises the addition to and the reversal of the
provision between two balance sheet dates and the dividend
equivalent paid during the period.
Presentation in the consolidated statements of cash flows.
Interest and taxes paid as well as interest and dividends received
are classified as cash provided by operating activities. Dividends
paid are shown in cash provided by/used for financing activities.
2. Accounting estimates and assessments
In the consolidated financial statements, to a certain degree,
estimates, assessments and assumptions have to be made
which can affect the amounts and reporting of assets and lia bil-
ities, the reporting of contingent assets and liabilities on the
balance sheet date and the amounts of income and expense
reported for the period. The major topics affected by such
estimates, assessments and assumptions are described as follows.
Actual amounts may differ from the estimates. Changes in the
estimates, assessments and assumptions can have a material
impact on the consolidated financial statements.
Recoverable amounts of cash-generating units and invest-
ments accounted for using the equity method. In the context
of impairment tests for non-financial assets, estimates have to
be made to determine the recoverable amounts of cash-generating
units. Assumptions have to be made in particular with regard
to future cash inflows and outflows for the planning period and
the following periods. The estimates include assumptions
regard ing future market share and the growth of the respective
markets as well as regarding the products’ profitability. On
the basis of the impairment tests carried out, the recoverable
amounts are substantially larger than the net assets of the
Group’s cash-generating units.
When objective evidence of impairment is present, estimates
and assessments also have to be made to determine the
recoverable amount of an equity-method financial investment.
The determination of the recoverable amount is based on
assumptions regarding future business developments for the
determination of the expected future cash flows of that financial
investment. See Note 13 for the presentation of carrying values
and fair values of equity-method financial investments in listed
companies.
Equipment on operating leases. Daimler regularly reviews
the factors determining the values of its leased vehicles. In particu-
lar, it is necessary to estimate the residual values of vehicles
at the end of their leases, which constitute a substantial part
of the expected future cash flows from leased assets. In this
context, assumptions have to be made regarding the future
supply of and demand for vehicles, as well as the development
of vehicle prices. Those assumptions are determined either
by qualified estimates or by expertise provided by third parties;
qualified estimates are based on publicly available data with
consideration of internally available additional information such
as historical experience of price developments and recent sale
prices. The residual values thus determined serve as a basis for
systematic depreciation; changes in residual values lead either
to prospective adjustments to the systematic depreciation or,
in the case of a significant drop in expected residual values,
to impairment. If systematic depreciation is prospectively adjust-
ed, changes in estimates of residual values do not have a direct
effect but are equally distributed over the remaining periods
of the lease contracts.
Collectability of receivables from financial services. The
Group regularly estimates the risk of default on receivables from
financial services. Many factors are taken into consideration
in this context, including historical loss experience, the size and
composition of our portfolios, current economic events and
conditions and the estimated fair values and adequacy of collateral.
Changes in economic conditions can, beside changes in our
customers’ creditworthiness, lead to changes in used vehicle
prices which would have a direct effect on the market values
of the vehicles assigned as collateral. Changes to the estimation
and assessment of these factors influence the allowance for
credit losses with a resulting impact on the Group’s net results.
See also Notes 14 and 31 for further information.