Mercedes 2012 Annual Report Download - page 195

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Financial assets. Financial assets primarily comprise
receivables from financial services, trade receivables, receiv-
ables from banks, cash on hand, derivative financial assets
and marketable securities 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 at fair value through profit or loss comprise
derivatives, including embedded derivatives separated from
the host contract, which are not classified as hedging instruments
in hedge accounting. Shares and marketable debt securities
acquired for the purpose of selling in the near term are classified
as held for trading. 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 recog-
nition, loans and receivables are subsequently carried at
amortized cost using the effective interest method less any
impairment losses. Gains and losses are recognized in the
statement of income when the loans and receivables are derec-
ognized 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
preceding categories. This category includes 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 other comprehensive income/loss. 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 recog-
nized in other comprehensive income/loss resulting from mea-
surement at fair value are recognized in profit or loss. If a
reliable estimate of the fair value of an unquoted equity instru-
ment, such as an investment in a German limited liability
company, cannot be made, this instrument is measured at cost
(less any impairment losses). Interest earned on available-
for-sale 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 and 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 consoli-
dated statement of cash flows.
Impairment of financial assets. At each reporting date,
the carrying amounts of 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 impair-
ment. Objective evidence may exist for example if a debtor is
facing serious financial difficulties or there is a substantial
change in the debtor’s technological, economic, legal or market
environment. For quoted equity instruments, a significant or
prolonged decline in fair value is additional objective evidence
of 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 carrying amount exceeds the fair value for a period longer
than nine months.
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
impairment loss decreases and the decrease can be attributed
objectively to an event occurring after the impairment was
recognized, 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 and trade receivables) is recorded using allowance
accounts. The decision to account for credit risks using an
allowance 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.