Mercedes 2012 Annual Report Download - page 194

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7 | Consolidated Financial Statements | Notes to the Consolidated Financial Statements
The recoverable amount is the higher of fair value less costs
to sell and value in use. For cash generating units, which
at Daimler correspond to the reportable segments, Daimler
in a first step determines the respective recoverable amount
as value in use and compares it with the respective carrying
amounts (including goodwill). Value in use is measured by
discounting expected future cash flows from the continuing use
of the cash generating units using a risk-adjusted interest
rate. Future cash flows are determined on the basis of the long-
term planning, which is approved by the Board of Manage-
ment and which is valid at the date of conduction of the impair-
ment test. This planning is based on expectations regarding
future market share, the growth of the respective markets
as well as the products’ profitability. The multi-year planning
comprises a planning horizon until 2020 and therefore mainly
covers the product lifecycles of our automotive business.
The rounded risk-adjusted interest rates, which are calculated
for each segment, used to discount cash flows currently
are unchanged from the previous year at 8% after taxes for the
cash generating units of the industrial business and 9% after
taxes for Daimler Financial Services. Whereas the discount
rate for Daimler Financial Services represents the cost of equity,
the risk-adjusted interest rate for the cash generating units
of the industrial business is based on the weighted average cost
of capital (WACC). These are calculated based on the capital
asset pricing model (CAPM) taking into account current market
expectations. In calculating the risk-adjusted interest rate
for impairment test purposes, specific peer group information
for beta factors, capital structure data and for cost of debt
are used. Periods not covered by the forecast are taken into
account by recognizing a residual value (terminal value), which
generally does not consider any growth rates. In addition,
several sensitivity analyses are conducted. These show that even
in case of more unfavorable premises for main influencing
factors with respect to the original planning, no need for impair-
ment exists. If value in use is lower than the carrying amount,
fair value less costs to sell is additionally calculated to determine
the recoverable amount.
An assessment for assets other than goodwill is made at each
reporting date as to whether there is any indication that
previously recognized impairment losses may no longer exist
or may have decreased. If this is the case, Daimler records
a partial or entire reversal of the impairment; the carrying amount
is thereby increased to its recoverable amount. However,
the increased carrying amount may not exceed the carrying
amount that would have been determined (net of depreciation)
had no impairment loss been recognized in prior years.
Non-current assets held for sale and disposal groups.
The Group classifies non-current assets or disposal groups
as held for sale if the conditions of IFRS 5 Non-current assets
held for sale and discontinued operations are fulfilled. In this
case, the assets or disposal groups are no longer depreciated
but measured at the lower of carrying amount and fair value
less costs to sell. If fair value less costs to sell subsequently
increases, any impairment loss previously recognized is
reversed, this reversal is restricted to the impairment loss pre-
viously recognized for the assets or disposal group concerned.
The Group generally discloses these assets or disposal groups
separately in the statement of financial position.
Inventories. Inventories are measured at the lower of cost
and net realizable value. The net realizable value is the estimated
selling price less any remaining costs to sell. The cost of
inventories is generally based on the specific identification
method and includes costs incurred in acquiring the inventories
and bringing them to their existing location and condition.
Costs for large numbers of inventories that are interchangeable
are allocated under the average cost formula. In the case
of manufactured inventories and work in progress, cost also
includes production overheads based on normal capacity.
Financial instruments. A financial instrument is any contract
that gives rise to a financial asset of one entity and a financial
liability or equity instrument of another entity. Financial instru-
ments in the form of financial assets and financial liabilities
are generally presented separately. Financial instruments are
recognized as soon as Daimler becomes a party to the contractual
provisions of the financial instrument.
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
mentioned in IAS39 Financial Instruments: Recognition
and Measurement. 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.